Gold Increases As Fed Anticipates Only One More Rate Increase

Following the Federal Reserve's most recent interest-rate increase, Treasury rates and the U.S. currency declined. Fed Chairman Jerome Powell and his colleagues indicated that only one more raise would likely occur this year.

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Price Movement

• On the Comex, gold futures for April delivery rose $30.70 or 1.6% to $1,980.30 per ounce (GC00, 2.36%; GCJ23, 2.35%).
• The price of silver in May delivery futures SI00, 2.15% SIK23, 2.17% increased by 26.4 cents or 1.2% to $23.05 per ounce.
• Although platinum for April delivery PLJ23, 0.45% moved up by 90 cents, or 0.1%, to $987.90 per ounce, palladium for June delivery PAM23, -0.91% fell by $13.70, or 1%, to $1,432 per ounce.
• HGK23, 1.84% copper for May delivery saw a 4 cent, or 1%, increase to $4.084 a pound.

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Market Forces

The Fed's indication that its policy interest rate won't rise very far propelled Thursday's movement of the most active gold futures contract toward the $2,000 per ounce mark.

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On Wednesday, the Fed increased its benchmark rate by 25 basis points, but Chairman Jerome Powell and his FOMC colleagues both indicated that there would only be one more rate increase at their upcoming meeting in May before a break. Gold's price previously momentarily reached $2,000 per ounce.

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According to Joseph Cavatoni, the head of market strategy for North America at the World Gold Council, the Fed's 25 basis-point rate increase, coupled with ongoing financial meltdown, has further enhanced gold's status as a "safe-haven asset." Indicating so both short-term traders and long-term buyers are exhibiting a great interest in this asset, this has caused a noticeable spike in the price of gold.

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Although there would be ongoing short-term turbulence in the price of gold as investors react to the rate decision and the economic outlook, Cavatoni predicted that investors will think strategically about long-term allocation to gold throughout the year.

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Analysts claim Powell appeared to leave the door open that this would be the last rate hike for some time at his press conference on Wednesday. Powell stated that Fed policymakers were unsure about the future course of interest rates.

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George Milling-Stanley, chief gold tactician at State Street Global Advisors, stated in comments emailed prior to the chairman's media briefing on Wednesday afternoon that gold prices had increased ahead of the Fed announcement and "remain high from recent tiers when the line graph recommended the Fed might pause its rate hikes after one supplemental 25 [basis point] ramp up next month." Market focus now appears to be on whether the halt actually occurs and when a potential shift to rate reduction would occur.

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remarks from the U.S. Stocks fell Wednesday afternoon as a result of Treasury Secretary Janet Yellen's statement that a broad bank-deposit guarantee was not being contemplated, but gold prices rose.

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According to Charalampos Pissouros, chief investment analyst at XM, "a lower dollar and a continued decline in Treasury yields enabled gold to rally from near the $1,935 zone."