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Gold Spikes to 1-Week High as US Fed Becomes 'More Patient' on Rates, Silver Halves 8% Monthly Loss

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Adrian Ash is head of research at BullionVault, the world-leading gold trading & ownership service online…

GOLD PRICES jumped against all currencies lunchtime Wednesday in New York after the US Federal Reserve cut the word “patient” from its statement on keeping Dollar interest rates at 0%, but stressed that inflation needs to reach 2% before it hikes.
Instead of vowing to remain “patient” before raising rates, “In determining how long to maintain” its target rate range of zero to 0.25%, Janet Yellen’s Committee said it will “assess progress – both realized and expected –toward its objectives of maximum employment and 2 percent inflation.”
Unemployment fell on February’s non-farms data to 5.5%.
The Fed’s preferred inflation measure, the core PCE deflator, fell to just 1.3% per year in January.
Holding above Tuesday’s new 4-month low of $1143 per ounce in Asia and London trade today, the gold price leapt above $1170 following the Fed statement.
US stock market reversed early losses to trade 1% higher, but equities in the Eurozone – where the opening of the European Central Bank’s new offices were marked by angry and violent ‘anti-austerity’ protests in Frankfurt – had already ended the lower.
The Dollar meantime sank to a 1-week low vs. the Euro on the FX market.
Ten-year US Treasury bond yields fell to 1.97%, their lowest level in a month and well over one percentage point below where they stood when the Fed began ‘tapering’ its QE asset purchase program in January 2014.
Silver followed and extended the leap in gold prices, halving March’s previous 8% loss to trade back above $16 per ounce and remain the only precious metal to hold substantial gains for 2015 to date.
“Markets [had] largely priced in that the Fed [would] drop the word ‘patient’ from its forward guidance on interest rates,” said a Reuters gold price report earlier, “potentially paving the way for the first increase since 2006 in June.”
But the Fed “now expects to be more patient in when and how far they will raise interest rates than they were last December,” noted Berkeley professor Brad DeLong on his blog, reviewing the central bank’s updated forecast charts of where policy-makers expect interest rates to stand in the next 2 years and beyond.
Going into the Fed decision, data from Reuters showed, the top 5 contracts by interest in May gold Comex options were entirely bearish.
Bearish puts also outnumbered bullish calls 2.5-to-1 in April options, although the heaviest single interest was in contracts to buy gold at a price of $1030 per ounce – some 10% below Wednesday morning’s price.
“While the near-term could see gold prices trade only marginally higher over the next few years,” said a note from Australian bank ANZ today, “we believe the combined effect of greater demand from investors and central banks will see gold prices rise materially over the long-term.”
ANZ also sees China’s role in the market – already the No.1 miner and consumer nation – growing to “dominate the price discovery process too”, as the world’s second-largest economy liberalizes its finance industry to international flows.
“There is no reason why Shanghai should not become a major centre for gold trading provided the appropriate institutional and legal reforms take place.”
Thursday will mark the last day of the 100-year old London Gold Fix, the price discovery used to match the greatest volume of buying and selling in the wholesale market.
A new system, replicating the Fix’s ‘trial and error’ process to identify the market-wide price, will begin Friday, administered for the London Bullion Market Association by benchmark specialists ICE.

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the mining-sector’s World Gold Council research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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