Gold futures rebounded Thursday to post their first gain in three sessions, as Treasury yields declined in the wake of a Federal Reserve decision to taper its bond purchases.
While Fed chairman Jerome Powell stressed it’s too soon to raise interest rates — the normal response to higher inflation — he insisted the Fed will “use our tools as necessary” to keep price pressures in check.
“Investors are realising that monetary policy is not going to tighten as much as some had feared a couple of months ago, when inflation was surging,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a market update. “Central banks have remained resilient in their forecasts that price pressures will wane, reducing the risks of even tighter policy.”
The Bank of England on Thursday decided to keep interest rates at 0.1%, defying market expectations for a rate hike.
Following the Bank of England’s surprise decision, U.K. yields have fallen. “Yields have stopped going higher in the last couple of weeks, both in Europe and U.S., allowing gold to stabilise,” said Razaqzada.
“The precious metal needs the dollar to weaken in order to come back even stronger,” he said. For now, the greenback, as measured by the ICE U.S. Dollar index
was up 0.4%.
“With equity markets pointing to a risk-on environment, and the Fed not being as hawkish as some had feared, the dollar could be heading a bit lower from current levels, which should be positive news for gold and silver,” Razaqzada said.
Gold for December delivery
Gold ended lower Wednesday, but bounced in electronic trade after the Fed, as expected, said it would begin to scale back asset purchases later this month.
Many market participants had positioned themselves “in anticipation of hawkish remarks from the U.S. Federal Reserve. The Fed turned out to be less hawkish than expected, however, allowing the gold price at least to recoup a small part of its losses,” said Daniel Briesemann, analyst at Commerzbank, in a note.
Treasury yields were mostly lower Thursday. Lower yields can be a positive for gold, reducing the opportunity cost of holding a non-yielding asset.
Analysts continued to debate whether the Fed is behind the curve.
“It was a dovish taper and a clear signal that we will have to wait until the summer to hear them admit they are wrong about inflation,” said Edward Moya, senior market analyst at Oanda, in a note. “Wall Street got a bit aggressive with rate hike expectations and while yields should still rise, it might be at a slower pace which is good news for gold.”
In other Comex metals trading, December copper
ended little changed, down a fraction of a cent, at $4.3205 a pound.