March 16, 2016
Gold ends lower, then rallies after the Fed cuts its rate-hike outlook
Published: Mar 16, 2016 2:29 p.m.
By Myra P. Saefong
Marketwatch.com
Gold futures settled lower Wednesday, pressured by some gains in the U.S. dollar on the back of strong economic data, but prices rallied past $1,240 an ounce in electronic trading after the Federal Reserve lowered the number of interest-rate increases it expects this year.
The Federal Open Market Committee held interest rates steady, with the benchmark irate in a range of 0.25%-0.5%, and indicated it intends to lift them very slowly because of a weak global environment and volatile stock market. Officials penciled in only two quarter-point hikes this year, down from four such hikes in December.
The central bank made its highly anticipated policy statement at 2 p.m. Eastern Time, about 30 minutes after gold futures settled on Comex.
Ahead of the news, April gold fell $1.20 cents, or 0.1%, to settle at $1,229.80 an ounce—its lowest finish since Feb. 26.
Shortly after the Fed news, however, prices jumped to trade around $1,247.70.
The U.S. dollar turned lower after the announcement. A weaker buck can make assets priced in dollars more attractive to investors using other currencies.
“Any indications that the Fed is showing less enthusiasm for rate hikes is bullish for gold, as we saw today,” said Brien Lundin, editor of Gold Newsletter. “Any indication that they’ll have to forestall hikes altogether, or even revert to easing, would send gold catapulting higher.”
Conversely, interest-rate hikes can dull demand for gold, which doesn’t bear a yield.
Concerns about the U.S. economy, sluggish growth in China, the emergence of negative interest rates in Japan as well as additional stimulus measures enacted in Europe last week have recently supported safe-harbor bidding in gold, which has climbed about 16% year to date.
On Wednesday, a report from the Commerce Department showed that construction of single-family homes rose in February to its highest level in nine years and housing starts overall rose to a five-month high.
Meanwhile, a measure of inflation, the consumer-price index, is showing signs of rising to levels considered healthy by the Fed. That potentially gives the central bank a runway to return to hiking rates since pausing following its first interest-rate increase in nearly a decade in December.
“U.S. data [have] been supportive of a rate hike,” said Lundin.
The dollar DXY, -1.08% extended its gains against rival currencies after the data, putting some pressure on gold.
Rounding out Wednesday’s pre-FOMC action on Comex, silver for May delivery shed 4.2 cents, or 0.3%, to $15.22 an ounce and May copper ended nearly flat at $2.234 a pound. April platinum slipped by $1.10, or 0.1%, to $958.70 an ounce and June palladium settled at $577.50 an ounce, up $6.80, or 1.2%.
http://www.marketwatch.com/story/gold-struggles-ahead-of-important-fed-statement-2016-03-16
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