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Gold Spikes After Federal Reserve Leaves Interest Rates Unchanged

June 15, 2016 at 18:59 by Andrew Moran

Gold prices spiked soon after the Federal Reserve confirmed it will leave interest rates unchanged this month. The yellow metal has renewed its momentum in June after declining about 7% in May.

Gold futures rose as high as $10.75, or 0.80%, to $1,296.22 per ounce at 18:31 GMT. Silver prices also climbed $0.16, or 0.92%, to $17.57 an ounce.

Gold is continuing its strong 2016 as the yellow metal has soared more than 20% this year.

The US central bank said on Wednesday that it will not raise interest rates in June. It did not provide any hint as to whether or not it will increase rates next month. It forecast three interest rate hikes in both 2017 and 2018. Six Fed officials predicted just one rate hike this year. The Fed also reduced its 2016 gross domestic product (GDP) forecast to 2% from 2.2%.

The Federal Open Market Committee (FOMC) issued a statement explaining its decision:

Information received since the Federal Open Market Committee met in April indicates that the pace of improvement in the labor market has slowed while growth in Toddler Bounce House economic activity appears to have picked up. Although the unemployment rate has declined, job gains have diminished. Growth in household spending has strengthened. Since the beginning of the year, the housing sector has continued to improve and the drag from net exports appears to have lessened, but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation declined; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

At a press conference, Fed Chair Janet Yellen stated that gradual increases to the federal funds rate over time will remain consistent in achieving the central bank’s objectives. She stated that it remains “important not to overreact to one or two monthly readings.” Yellen added that a potential Brexit was “one of the factors that factored into today’s decision,” warning that such a move would have devastating financial consequences.

Yellen is scheduled to deliver her semiannual monetary policy report to Congress on June 21–22.

According to the CME Group FedWatch tool, the probability of a July rate hike stands at 12%.

The next time the FOMC meets will be on July 27.

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