Gold News: Commodities Rebound After Fed Meeting

Gold News

The US dollar has been under pressure lately after rising for nine straight months and reaching a 12-year high against the euro. The Federal Reserve had a meeting on March 18th, when market analysts expected Federal Reserve Chair Janet Yellen and her colleagues to set the stage for interest rates to be raised from near zero in June by dropping the word “patient” from its outlook. While the term was dropped from the outlook, the Fed’s outlook was more cautious on the health of the economic recovery than expected, causing gold to have its biggest weekly gain in two months.

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Gold prices had dipped to a four-year low before the Fed meeting, after falling 29% in the previous two years as the dollar surged and inflation remained low. Gold prices had climbed 70% from December 2008 to June 2011 partly because the Fed kept interest rates near a record low. The downward pressure on gold in recent months has been in part due to the expectations that interest rates would be raised soon, which has caused the value of the dollar to increase. This makes the cost of holding gold more expensive, especially for holders of other currencies.

Although the term “patient” was dropped from the Fed’s outlook, Yellen signaled policy makers were not rushing to raise interest rates, causing market analysts’ expectations of an interest rate hike to shift. Fed officials said they won’t raise rates until they are “reasonably confident” inflation will return to their target and the labor market improves further. A majority of Wall Street’s top banks now expect the Fed to hold off until at least September to raise interest rates, with the odds of a June hike fading.

Gold is not necessarily a breakout investment candidate, however, as the precious commodity is still being weighed down by the eventual interest rate hike. The problem for gold is that investors are still confident that when the Fed starts lifting benchmark rates from near zero fast, it will do so fast enough to prevent consumer prices from surging as the economy rebounds. The yellow metal is seen as a hedge against inflation, which is not as attractive right now compared to assets with better yield prospects such as equities and bonds.

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