· Gold prices fell for a third-straight session Wednesday to settle at their lowest level in a week, but headed higher in electronic trading as the U.S. dollar weakened in the wake of the Federal Reserve’s policy statement.
· The Fed stood pat on interest rates, as expected, and said it would start reducing its $4.5 trillion balance sheet “relatively soon.” The central bank had already appeared to be unified on its plan to start selling off part of portfolio in Treasurys and mortgage-backed bonds acquired over the past decade to help stabilize the U.S. economy.
· Ahead of the Fed news, August gold GCQ7, +0.98% fell $2.70, or 0.2%, to settle at $1,249.40 an ounce—the lowest finish since July 20, according to FactSet data. In electronic trading shortly after the Fed statement, prices inched up to $1,254.80 an ounce.
· Gold has jumped 1 per cent to a six-week high on Wednesday, after the US Federal Reserve said it would start to wind down its massive holdings of bonds "relatively soon," pushing the dollar lower.
· The US central bank kept interest rates unchanged as expected and said it was continuing the slow path of monetary tightening that has lifted rates by a percentage point since 2015, the Fed said in a statement following a two-day meeting.
· Spot gold rallied 1.1 per cent to $US1,262.11 an ounce by 3.11 pm Wednesday EDT (0511 Thursday AEST). Its session high of $US1,263.42 was the highest since June 15.
· "Gold clawed back recent losses and surged to fresh highs of the rally as the Fed confirmed it was on a summer sabbatical with a safe statement that nodded to lower inflation but was offset by a confirmation that balance sheet tapering would occur 'relatively soon,'" said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
· The US dollar fell to a 13-month low against a basket of major currencies after the Fed statement. US 10-year Treasury yields also fell, providing support to bullion.
· Based off initial market reactions, gold traders “see the announcement as being more dovish, supporting precious metals, while confidence in the U.S. dollar is undermined, although rather oversold over the short-term,” said Peter Spina, president and chief executive officer of GoldSeek.com.
Looking ahead, “gold is going to have a challenge moving much higher towards $1,300 over the short-term, but the stage is being set that the FOMC will be more slow in raising rates and how much they will be able to unload of their massive balance sheet starting in the near term,” he said.
· Meanwhile, U.S. data have provided a mixed economic picture for the Fed. On Wednesday, data showed that new home sales stayed steady in June, but the Conference Board’s consumer confidence index Tuesday showed a rise in July to the second highest level in 16 years.
· "We expect the Fed to delay its next rate hike until December this year, with risks skewed toward a longer pause given the possibility that core inflation takes longer to recover. We expect two rate hikes next year." ABN Amro economist Nick Kounis said in a note.
· Among other metals, September silver SIU7, +0.98% which had parted with gold on Tuesday to close higher, lost 8.3 cents, or 0.5%, to settle at $16.459 an ounce on Wednesday.
Reference: Market Watch, Business News
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