Quiver Quantitative - In a recent development, Gold (GLD (NYSE:GLD)) saw a reduction in its gains following the Federal Reserve's decision to maintain its benchmark interest rate, while implying the probability of sustaining higher borrowing costs for an extended period, post a forthcoming hike this year. The Federal Open Market Committee (FOMC), through its post-meeting declaration, hinted at further scrutiny regarding the necessity of additional policy firming. As of now, the federal funds rate stands untouched in the 5.25% to 5.5% bracket, with a considerable section of officials favoring another rate augmentation in 2023, emphasizing their eagerness to manage a sustained reduction in inflation rates.
Moreover, the latest forecasts illustrate a diminished propensity for easing in the coming year, mirroring the rejuvenated vigor observed in the economy and labor sectors. Oanda's Senior Market Analyst, Ed Moya, characterized the rate determination and forecasts as distinctly "hawkish", pointing out the unsettling influence of the "dot plots" on gold investors. Despite the perturbing indicators, bullion managed to retain its position, even with the escalation of bond yields, which have soared to levels unseen since 2006. The anticipation of higher interest rates generally deters the investors' enthusiasm for non-yielding assets such as commodities. This situation may see further fluctuations with impending announcements from several developed-market central banks, including the Bank of England, which might influence the pricing of metals.
In a press conference succeeding the central bank's two-day policy discussion, Federal Reserve Chairman Jerome Powell refrained from expressing an optimistic "soft landing" as the baseline anticipation for the US economy. Powell accentuated the potential role of external factors in shaping the outcome, whilst asserting the feasibility of a cautious approach, given the current circumstances.
In the market, spot gold exhibited a modest rise of 0.3%, settling at $1,936.47 an ounce, after initially peaking at a 0.8% advancement. Concurrently, copper futures demonstrated a positive trend, escalating by 0.6% and finalizing at $8,345.50 per metric ton on the London Metal Exchange. This market response indicates a cautious but positive reaction from investors, who are closely watching the developments and adjusting their strategies accordingly.
This article was originally published on Quiver Quantitative