Gold futures traded at a one-week high Thursday morning in the US amid a general market consensus that accommodating monetary policies from the Federal Reserve will persist till year end.
Gold for June delivery on the Comex division of the New York Mercantile Exchange climbed $6.10 or 0.5 percent to $1,256.50 per ounce. Trade has ranged from $1,239.10 to $1,262.90.
“At this point, we would rather watch the action in gold from the sidelines. For one thing, we would like some time to pass in order to assess how the dollar behaves going into next week, since currency variables continue to be the predominant driver in most commodity markets for the moment,” INTL FCStone’s Edward Meir said.
Yesterday, the Federal Reserve announced that they will keeping nominal interest rates at 0.50 percent after seeing slowing growth in economic activity. However, the policy-board did remove its concerned tone over global risks and its potential impact on the American recovery.
“The US Federal Reserve left its monetary policy unchanged at its meeting yesterday,” Commerzbank said. “More importantly for the markets, however, was the fact that it made cautious remarks about how it plans to proceed in the future, and gave no indication of any rate hike in June.”
“We believe that the Fed is not likely to raise interest rates further until the second half of the year,” the broker continued.
Investors agree with the bank with a majority of investors citing December as the most likely time for the Fed to raise rates again, according to the CME Group FedWatch.
Still, Yellen has warned that prolonged periods of artificially low interest could disrupt capital markets and lead to an overheated economy.
Eslewhere, the Bank of Japan’s (BOJ) shocked markets by deciding to keep its monetary policy unchanged. The lack of additional stimulus measures lead to a sell-off in the Nikkei, which closed down 3.61 percent, and a violent spike by the yen.
“The BoJ has made a very, very big mistake,” Dennis Gartman, editor of the Gartman Letter, said. “The stock market has plunged. Corporate Japan, hoping for greater monetary wind behind its sails, has been thrown an anchor instead and needing a materially weaker yen has gotten a materially stronger yen instead. We are stunned.”
In today’s data, US unemployment claims hit a 42-year low of 247,000, which easily beat the 257,000 forecast. But US GDP increased by a 0.5-percent annual rate in the first quarter, the slowest pace since the first quarter of 2014 and below the 0.7-percent consensus estimate.
This contradiction of a strong jobs market with tepid GDP growth has put the Federal Reserve in a bind. The central bank would clearly like to rate rates a couple of times this year but it does not want to push the economy towards a recession.
But the lacklustre GDP reading weighed on the dollar, which will offer an element of support to most commodity markets, Meir noted.
Turning to international markets, Germany’s DAX and France’s CAC-40 were down 1.2 percent and 1.4 percent respectively, while the dollar 0.2 percent softer at $1.1344 against the euro.
Meanwnile, paper holdings of gold ETF’s tracked by FastMarkets are seeing a boost in investment demand, with 0.41 tonnes bought overnight lifting the total holdings to 1,807 tonnes.
“The charts look bullish, our medium-term outlook remains bullish, the gold/silver ratio is improving and the platinum/gold discount is shrinking, all of which suggests investor sentiment is becoming more bullish for precious metals,” William Adams, Head of Research at FastMarkets, said. “But we are nervous about how long the fund longs already are.”
As for other precious metals, Comex silver for May deliver increased 5.60 cents or 0.3 percent to $17.345 per ounce. Trade has ranged from $17.140 to $17.415.
“The main difference between gold and silver is that silver has substantially more industrial applications than gold,” Georgette Boele, coordinator FX and precious metals strategist at ABN AMRO, said. “When the overall outlook on China became less negative as Chinese data stabilised, the industrial demand outlook for platinum, palladium and silver improved.”
Platinum for July settlement gained $15.40 or 1.6 percent to $1,040.80 per ounce, while the most-actively traded palladium contract stood at $614.50, down $4.85 or 0.8 percent.
(Editing by Tom Jennemann)
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