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Federal Reserve Minutes Help Gold Top $1,350 Again

August 18, 2016 at 17:18 by Andrew Moran

The release of the minutes from the Federal Reserve‘s monetary policy meeting last month helped gold top the closely watched $1,350 mark again. After it was discovered that the US central bank would take a slow approach to raising interest rates, the yellow metal started to make modest gains on Thursday.

December gold futures rose $7.41, or 0.55%, to $1,350.11 per ounce at 16:50 GMT. Gold had finished Wednesday’s trading session below the important $1,350 threshold as investors tried to disseminate the minutes. Gold is on track for a two-week high.

Silver has been mostly unaffected by the central bank news. September silver futures jumped a tepid $0.05, or 0.26%, to $19.68 an ounce. Silver has been regularly jumping above and sinking below the $20 benchmark for most of August.

According to the Fed minutes from the July 26 and 27 meeting, officials were split on what to do with interest rates. Policymakers at the Federal Open Market Committee (FOMC) were pleased that any dire economic threats did not occur. It still remains unclear as to what Fed Chair Janet Yellen will do with interest rates for the rest of 2016.

Prior to the release of the FOMC minutes, investors had thought the Fed became more hawkish. This attitude was brought about from comments made by New York Fed President William Dudley, who had hinted at a September rate hike.

It now appears that traders are looking towards either December or early 2017 for a rate hike. The CME Group FedWatch tool suggests there is a 51% chance of a December rate hike and a 52% chance of a February rate hike.

Higher rates can harm gold and silver because they do not offer investors a yield. This makes dollar-denominated precious metals less attractive to traders because they then seek out high-yield investments, like oil and stocks.

Overall, this very slow approach by the Fed pertaining to interest rates has helped gold and silver in 2016. Year-to-date, gold has climbed 25%, while silver has soared around 40%.

The next time we may get a hint at what the US central bank intends to do will be next week. Fed officials will be in Wyoming for their annual summer retreat, where Yellen is expected to deliver a speech. Analysts are hoping Yellen will be providing clues over monetary policy.

If you have any questions and comments on the commodities today, use the form below to reply.

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