Prices of precious metals soared in Asian trading this morning, with gold prices rallying from a 2-week low, as investors reacted to the Federal Reserve lowering their forecast for 2016, whilst halving the number of expected interest rate hikes this year.
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Gold for April delivery on the Comex division of the New York Mercantile Exchange slipped $11.70 or 0.9 percent to $1,253.30 per ounce.
Spot gold jumped 2.3 percent to $1,260.61 an ounce at 3:14 p.m. EDT (1914 GMT), after trading down as much as 0.4 percent to $1,226.87 prior to the statement.
The Federal Reserve’s two-day policy meeting, starting on Tuesday, will be watched for clues on the future pace of US rate increases after the central bank hiked rates for the first time in almost a decade in December.
A low interest rate environment tends to decrease the opportunity cost of holding non-yielding bullion.
Citing problems with the global economy, the Fed kept rates on hold and now see only two rate hikes instead of four this year.
The relatively weak dollar and a repricing of expectations for US interest rate rises have helped gold rebound by more than 18 percent this year so far.
Physical gold demand slowed in top consumer China last week, while a strike by jewelers protesting against the imposition of a tax curbed demand in No. 2 market India.
The price of gold has posted a sizable increase in 2016, according to Kitco. “Meanwhile, the more dovish than expected communication by the Fed has resulted in a sharp recovery in prices”. Further gains could prove elusive without further stimulus, analysts said.
Charles Gardet/GFDLCharles Gardet/GFDLHSBC argues that there are three fundamental reasons why gold’s rally is likely to extend well beyond 100 days, and keep rising, despite financial markets stabilising in recent weeks. The Fed, however, has commented repeatedly on the negative impact of a strong United States dollars on import prices in depressing inflation.
Julian Jessop, head of commodity research at Capital Economics, said that they are expecting gold prices to fall in the near-term as the Fed signals fairly clearly that they are going to raise rates sooner rather than later.
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In other metals, silver leapt 5.1% to $16 an ounce, while copper rose 2.6%, to $2.27 an ounce.
