Gold Trades Near Three-Week High on Fed’s Rate Outlook

New York (June 19)  Gold traded near a three-week high in New York as the U.S. Federal Reserve said interest rates will remain low, boosting demand for the precious metal as an alternative investment.

Fed Chair Janet Yellen said the central bank plans to keep its interest-rate target low for a considerable time after it ends bond-buying, sending the Bloomberg Dollar Spot Index to the lowest level this month. The central bank said it would cut bond purchases by another $10 billion, to $35 billion, as expected by analysts. Gold ended a 12-year rally in 2013 on expectations that the central bank would scale back stimulus put in place to fuel growth.

“The FOMC policy statement did not contain major surprises, although at the margin, the general tone was probably more dovish than expected,” analysts including Edel Tully at UBS AG said in a report. “In effect, the lack of an aggressive Fed is gold-supportive.”

Gold for August delivery increased 0.7 percent to $1,281.80 an ounce at 7:18 a.m. on the Comex in New York. The precious metal climbed to $1,285.10 on June 16, the highest level since May 27, amid concern that unrest in Iraq and Ukraine would increase demand for bullion as a haven. Futures trading volumes were 19 percent lower than the average for the past 100 days for this time of day, according to data compiled by Bloomberg.

Gold for immediate delivery in London rose 0.3 percent to $1,281.81 an ounce, according to Bloomberg generic pricing.

The Federal Open Market Committee cut asset purchases at the end of a two-day meeting for the fifth straight time. Fed participants estimated long-term growth for the U.S. economy of 2.1 percent to 2.3 percent, compared with 2.2 percent to 2.3 percent in March and 2.5 percent to 2.8 percent in January 2010 in the wake of the most recent recession.

Source: Bloomberg