Gold futures settled lower Wednesday, pressured in part by strength in U.S. Treasury yields, then moved up after the Federal Reserve said it doesn’t plan to raise interest rates until the end of 2023.
As expected, the Federal Open Market Committee left rates unchanged, while continuing its Treasury and mortgage-backed security buyback at the same pace, said Jeff Klearman, portfolio manager at GraniteShares, which offers the GraniteShares Gold Trust
Chairman Jerome Powell “reiterated that inflation was not a concern and the Fed would continue its accommodative policy pursuing its full employment and inflation goals,” he said. ” As a result, market conditions continue to be favorable for gold prices.”
Against this backdrop, gold for April delivery
was at $1,741.90 an ounce in electronic trading shortly after the Fed news, up from Wednesday’s settlement at $1,727.10 on Comex. Prices had lost $3.80, or 0.2%, for the session.
Real yields are “still significantly negative with 5-year real yields about -1.7% and 10-year real yields about -0.7%, meaning there is no opportunity cost to holding gold,” Klearman told MarketWatch.
“The rise in longer-term Treasury rates has mainly been powered by increased inflation expectations and not by a significant rise in real rates, also supportive of gold prices,” he said.
“The U.S. dollar, which has strengthened marginally recently, is still near 3-year lows and may weaken further given the Fed’s continued accommodative monetary policy,” said Klearman. “Add to this uncertainty surrounding U.S. tax changes and the fact that the U.S. now has the largest national debt to GDP ratio, there seems to be very little reason for gold prices to move lower.”
On Wednesday, the dollar moved lower, with the ICE U.S. Dollar Index
down 0.2% after the Fed announcement, though it still traders higher month to date.
The 10-year Treasury note yield
meanwhile, touched its highest levels since January 2020, contributing pressure to prices for gold during the session, then eased some of its gain in the wake of the Fed decision. A rise in government debt yields can undercut appetite for precious metals.
Among other metals traded on Comex, May silver SIK21 edged up by 0.2% to settle at $26.06 an ounce, before the Fed announcement, and May copper
tacked on 1.2% to $4.12 a pound. April platinum
shed 1.6% to $1,199.30 an ounce, but June palladium
settled at $2,538.30 an ounce, up 1.9%.