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Gold futures gave up earlier gains on Wednesday to finish lower, marking their first loss in three sessions, but prices moved up in electronic trading after the U.S. Federal Reserve indicated that it does not plan to raise current interest rates, which stand near zero, through at least 2022.
“Lower for longer—that is where the Fed stands for now,” said Naeem Aslam, chief market analyst at AvaTrade, in reaction to the Fed statement. “Basically, the Fed is determined to maintain adequate liquidity in the system and they are ready to do whatever is required from them. The bottom line is that the market needed a cuddle from the Fed and they have given this.”
The central bank, which issued its statement at 2 p.m. Eastern, a half-hour after gold settled for the day on Comex, signaled it won’t raise near-zero interest rates at least through 2022.
Holding interest rates at near zero “makes gold an attractive safe-haven asset compared to its competitors and drives the dollar lower, which is great for gold,” said James Hatzigiannis, chief market strategist at Ploutus Capital Advisors.
The benchmark ICE U.S. Dollar Index DXY, -0.33% touched fresh session lows after the Fed news, providing support for dollar-denominated gold prices.
August gold GCQ20, +0.77% was at $1,735.50 an ounce shortly after the Fed announcement. It had settled at $1,720.70, down $1.20, or 0.07%, on Comex Wednesday. For the week thus far, gold prices have climbed 0.9%, according to FactSet data.
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Capital Economics expects U.S. interest rates “to remain at their lower bound going forward, so the gold price is unlikely to benefit from a further fall in rate expectations anytime soon,” said James O’Rourke, an economist at the economic research firm, ahead of the Fed news. “Unless the virus takes a turn for the worse, we think safe-haven demand will wane too as the global economy recovers, ultimately weighing on the gold price.”
All told, “we think that stimulus-fuelled inflation is unlikely in the short or medium term,” he said in a note Wednesday. “With interest rates set to remain historically low, we expect the gold price will come under pressure from fading safe-haven demand, falling to $1,600 per ounce by year-end.”
Last week, prices for gold were slammed after a report from the U.S. Labor Department showed that 2.5 million jobs were created in May, rather than estimates for a decline in payrolls of as many as 9 million jobs on the month. Hopes that the labor market data point to a bottoming in the recession as businesses restart with the coronavirus pandemic receding in most developed countries has juiced equity values, but depressed safe-haven investments like bullion last week.
Despite some signs of economic recovery, some analysts caution that the road ahead is long and could see a resurgence of the pandemic which could wreak fresh havoc on the global economy.
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Indeed, the Organization for Economic Cooperation and Development overnight said it expected the global economy to contract by 6% this year even if a second wave of infections is avoided, while it forecast a contraction of 7.6% in the face of a resurgence of the novel coronavirus.
Among other metals Wednesday, July silver SIN20, +2.05% ended flat at $17.796 an ounce, following a decline of nearly 0.6% a day earlier.
July copper HGN20, +3.25% tacked on 2.2% to $2.6565 a pound, up a fifth straight session. July platinum PLN20, -1.29% shed 1.7% to $846 an ounce, while September palladium PAU20, -1.37% lost nearly 1.9% to $1,930.80 an ounce.
