The US Federal Reserve raised benchmark interest rates for only the third time in the past decade Wednesday, but revealed a cautious outlook for 2017 that caused gold prices to shoot up more than 2 percent to US$1,220/oz.
Federal Reserve Chairman Janet Yellen confirmed the US Central Bank would be raising its federal funds rate by a quarter point to 0.75 percent to 1 percent, a move that had been widely expected by the financial community. But Yellen also stated that the bank will not be ramping up the frequency of short-term rate rises, weakening confidence in the dollar and sending investors rushing for dollar-denominated commodities including gold.
“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate,” said the Federal Open Market Committee (FOMC) in a statement. “The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
Analysts were bullish about the yellow metal’s ability to sustain the higher price. Peter Spina, President of Goldseek.com, said that the draw of further inflation will be too great for the Federal Reserve to risk additional hikes, further solidifying gold’s position.
“With gold pricing in this rate rise and tilted toward more aggressive or a surprise upside, (that) will keep the price well supported around US$1,200 with the possibility of a short-term run toward US$1,225-1,240,” he said. “(If) the market does not believe that the Fed will more slowly lift rates and senses a limit to where they can raise rates, they will set off a larger gold rally that could send it much higher later this year.”
Gold prices had been fairly flat Wednesday, hovering around the US$1,200-mark, but surged on electronic trading following the FOMC’s statement. Silver received similar support, rising to US$17.35/oz from US$16.89/oz at market close on Wednesday.
Sources: Mining.com, Marketwatch.com, Bullionvault.com