Gold Price Bounces Higher As Fed Stays The Course, Leaves Rates Unchanged

New York (May 2)  A cautious Federal Reserve, not anxious to raise interest rates faster than expected is breathing new life into the gold market as prices bounce off recent four-month lows.

As expected the Federal Reserve kept interest rates unchanged within a range between 1.50% and 1.75%. However cautious comments from the central bank regarding inflation pressures has been positive for the yellow metal.

“Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance,” the statement said. “Inflation on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.”

According to some economists the “stay the course” policy stance indicates that the central bank is in no hurry to raise interest rates faster than they forecasted in March, which calls for two more rate hikes this year.

Gold prices have struggled find momentum as a result of a strong U.S. dollar but have managed to hold in a well-established trading range above critical psychological support at $1,300.
The yellow has managed to bounce off its lows. June gold futures last traded at $1,311.50 an ounce, up 0.36% on the day.

According to some analysts, markets are keying on the Federal’s inflation comments on its “symmetric” inflation objective, which could indication the central bank will let inflation rise above 2% to make up for the previous months of lackluster price pressures.

Commodity analysts have said that gold could benefit from higher inflation pressures as it will keep real interest rates relatively low.

Royce Mendes, senior economist at CIBC World Markets, said that the Federal Reserve’s statement does not provide much guidance for a June rate hike. However, he added that CIBC is expecting a move as the U.S. economy continues to expand.

“The lack of any firm commitment to a near-term rate hike has so far seen yields move lower and the dollar depreciate,” he said. “But we still see accelerating growth readings as justifying another move then.”

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