(Kitco News) - Analysts are describing a policy statement from the Federal Open Market Committee Wednesday as mostly neutral for gold although perhaps mildly supportive in the short term.
The market barely budged after the Fed communiqué was released at the end of its two-day meeting, with policy-makers continuing to taper the bond-buying program known as quantitative easing but pledging to keep the federal funds rate at historic lows for a while yet. This was the outcome largely expected by economists.
As of 3:09 p.m. EDT, gold for December delivery was $3.20 lower to $1,297.30 an ounce on the Comex division of the New York Mercantile Exchange. The contract was at $1,295.90 two minutes ahead of the Fed statement. September silver was up 3.2 cents to $20.615 an ounce, compared to $20.57 just ahead of time.
George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, described the statement as perhaps mildly supportive for gold although not necessarily something that will send prices racing higher.
“It pared gold’s losses,” he said. “As expected, interest rates are to remain low for quite some time, although the Fed will be tapering.”
Ira Epstein, director of the Ira Epstein division of The Linn Group, characterized the statement as a “non-event” for the gold market for now. Down the road, he continued, traders are waiting to see if and how quickly the Fed will act on with interest rates once quantitative easing ends.
“It (the FOMC statement) probably has no impact at the current time,” he said. “What the market is looking for is as the tapering ends, to see how the dollar will react. I think it will be October.”
For now, he continued, the yield on 10-year Treasury notes remains in the neighborhood of 2.5% to 2.55%. It was at 2.554% as of 3:10 p.m. EDT.
“Until interest rates move one way or the other, it seems to be stuck at this $1,300 level,” Epstein said.
Phil Flynn, senior market analyst with Price Futures Group, also looks for gold to remain range-bound until the Fed offers more guidance on interest rates, although adding that in the meantime traders also will keep an eye on physical demand and geopolitical events.
“There really weren’t any surprises. Slackness in the labor market seems to suggest the Fed is still concerned about the jobs number…,” Flynn said. “For gold, it’s really more of the same. We know even with the U.S. economy improving, the taper is going to continue as scheduled. There is still a debate as to when interest rates are going up. Gold is probably back in this range.”
The tapering of quantitative easy is theoretically bearish for gold, but nevertheless the market has already factored this into prices since it has been ongoing for months now, he continued. The $1,300 area is practically acting as a “magnet” for gold, he said.
“We can’t get much above it. We can’t get much below it,” Flynn said.
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Policy-makers cut their bond-buying program for the fifth straight meeting, this time to $25 billion a month, and cited a rebound in second-quarter economic growth. However, they also cited “significant underutilization of labor resources.” They added that inflation has moved “somewhat closer” to the FOMC’s long-term objective, with the likelihood of inflation running persistently below 2% “diminished somewhat.”
“To support continued progress toward maximum employment and price stability, the committee today
reaffirmed its view that a highly accommodative stance of monetary policy remains appropriate,” said the statement.
The policy action was approved by a 9-1 vote.
The FOMC outcome came on a day when the market received two upbeat reports on the economy. The Commerce Department reported a stronger-than-forecast rise of 4% in second-quarter gross domestic product, a turnaround from an upwardly revised decline of 2.1% in the first quarter. Also, payrolls processor ADP reported that private-sector employment rose by 218,000 in July, below consensus estimates but nevertheless above the 200,000 level for the fourth straight month.
By Allen Sykora of Kitco News; asykora@kitco.com
