Gold Rises as Fed to Slow Rate Hike Pace

Gold and silver climbed the most in five weeks as Federal Reserve Chair Janet Yellen’s plan for slower interest-rate increases shook precious metals out of their doldrums.

The 30-day volatility for gold futures rebounded, reaching a one-week high after touching the lowest since October on Tuesday. Trading in options signal that investors are expecting more gains for prices. Holdings in exchange-traded products backed by the metal rose for a second day on Wednesday, the first consecutive advance in a month.

The dollar fell as a report showed U.S. inflation is well below the Fed’s targets, underscoring why policy makers on Wednesday cut their longer-term projections for increases to interest rates. Higher rates curb gold’s allure because the metal doesn’t pay interest or give returns like other assets such as bonds and equities.

“We could see more asset allocation in gold because Yellen sounded more dovish than the market expected,” George Gero, a senior vice president at RBC Capital Markets in New York, said in a telephone interview.

Gold futures for August delivery rose 2.1 percent to $1,201.50 an ounce at 10:25 a.m. on the Comex in New York, heading for the biggest gain since May 13. Aggregate trading was 36 percent higher than the the 100-day average for this time, according to data compiled by Bloomberg.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza