Gold Wavers on Yellen Testimony
Washington (Feb 24) Gold prices shuffled between gains and losses Tuesday, after Federal Reserve Chairwoman Janet Yellen waxed positive about the economy’s performance but appeared to temper any expectations of an imminent rate increase.
Gold for April delivery, the most actively traded contract, was recently up 60 cents, or 0.1%, to $1,201 a troy ounce on the Comex division of the New York Mercantile Exchange. Prices sank to $1,190 a troy ounce immediately after Ms. Yellen released her statement.
“The employment situation in the United States has been improving on many dimensions,” the central bank’s leader said in testimony prepared for the Senate Banking Committee, her first of two days before lawmakers.
If the economy keeps improving as the Fed anticipates, she said, the central bank “will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis.”
Higher rates are seen as bad news for gold, which struggles to compete with yield-bearing investments during times of tightening monetary policy.
Yet Ms. Yellen also highlighted a host of risks overseas, including slowing growth in China and the eurozone. She also sought to manage the market’s expectations as the Fed looks toward altering its rate guidance. The Fed’s next policy meeting is March 17-18, and officials are worried that when they remove the “patient” reference from their policy statement, investors will believe rate increases are imminent.
On the one hand, “Ms. Yellen is giving the sense that the Fed has no reason to hurry and will be somewhat patient,” said Peter Hug, global trading director at Kitco Metals. However, “the sense of people starting to feel better about the economy is a trend that takes away some of the market’s nervousness and the need to own gold from a safe-haven perspective.”
Gold prices are down about 8% since Jan. 22, as expectations of higher rates and easing tensions between Greece and its eurozone creditors cut demand for the metal, which some investors view as a place to park their wealth during times of uncertainty.
Source: WSJ
