Gold prices rise by 1% as Fed’s posture suggests rate hikes are on pause

Gold futures rose sharply on Thursday after the Federal Reserve left interest-rates unchanged and employed language hinting at a momentary pause in monetary tightening — a bullish development for bullion prices.

The most-active April gold contract GCJ9, +0.76% climbed $12.90, or 1%, at $1,328.40 an ounce, after settling at $1,315.50 an ounce before the Fed’s updated policy statement on Wednesday. Tracking the most-active contracts, gold futures traded more than 3% higher for the month.

March silver SIH9, +0.84% was up 1.5% at $16.165 an ounce, with prices up around 4% for the month.

The Federal Reserve on Wednesday left a key U.S. interest rate at a range of 2.25% to 2.50% and Chairman Jerome Powell said the central bank would be “patient” about further interest-rate moves, adding that it was open to slowing the pace of the runoff of its $4 trillion balance sheet if needed. Of particular note to market participants, the Fed removed a reference to “further gradual rate increases” in its policy statement, leaving many to believe that future rate hikes were on hold until further notice.

The policy update marked a decidedly dovish shift for the Fed, even if the market had anticipated a more moderated stance on the pace of monetary normalization. This position has put downward pressure on the U.S. dollar, which skidded lower late Wednesday, providing a runway for commodities priced in the currency to trade higher.

“Rate hike expectations for the remainder of the year have completely disappeared, with the market pricing in a greater chance of a cut as the next move,” wrote Edward Moya, market analyst at Oanda, in a Thursday research note.

A measure of the buck, the ICE U.S. Dollar Index DXY, +0.14% a gauge of the dollar against a basket of six other monetary units, was little changed Thursday at 95.37.

“Gold’s momentum got another boost yesterday from the Fed’s dovish pivot on rates. The precious metal is poised for its fourth consecutive monthly gain as the fundamentals remain strong for it to climb higher,” said Moya.

The yellow metal had already been in an uptrend prompted by earlier communications of the Fed’s softening stance on rate increases and uncertainty about a resolution of a protracted tariff spats between the U.S. and China.

President Donald Trump said Thursday trade talks in Washington between the U.S. and China are going well, but that he doesn’t expect to reach a final deal until he and Chinese President Xi Jinping meet “in the near future.”

Meanwhile, a report Thursday from the World Gold Council showed that 2018 gold demand edged up by 4% to 4.345.1 metric tons, as central bank buying climbed to 651 metric tons, its highest in 50 years.

“Central banks have been buyers to shore up currencies,” said George Gero, managing director at RBC Wealth Management, in a note Thursday. Gold is “convertible to any currency holding, preferred by many who fear inflation, currency impairment and negative headlines.”

Exchange-traded funds and similar products, however, saw annual inflows of 68.9 metric tons, down from 206.4 metric tons in 2017, WGC data showed.

The gold-backed SPDR Gold Shares exchange-traded fund GLD, +0.13% rose 0.3% in Thursday dealings and the iShares Silver Trust SLV, +0.13% added 0.7%. The VanEck Vectors Gold GDX, +1.22% climbed 0.9%.

Among other metals on Comex, March copper HGH9, +0.54% traded at $2.79 a pound, up 0.8% for the session and looking at a monthly rise of around 6%. April platinum PLJ9, +0.81% added 1.1% to $825.50 an ounce, poised for a monthly rise of 3%.

March palladium PAH9, +1.37% tacked on 2.1% to $1,344.30 an ounce, trading more than 12% higher for the month. It traded near the record $1,348.20 it settled at on Jan. 17.

MarketWatch

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya