By MYRAP. SAEFONG & RACHELKONING BEALS
Gold futures settled higher Wednesday, scoring a third straight advance, then extended its gain after the Federal Reserve left interest rates unchanged, but signaled that a rate increase was likely before the year’s end.
Prices had spent most of the trading session in the green amid volatile currency moves, including a weaker dollar, even in the wake of the Bank of Japan’s aggressive steps to fight deflation announced earlier Wednesday.
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Ahead of the Fed announcement, December gold GCZ6, +0.86% rose $13.20, or 1%, to settle at $1,331.40 an ounce. The settlement was the highest Sept. 9, according to FactSet data.
In electronic trading shortly after the Fed news, prices wavered, then moved above the settlement price to trade at $1,333.60 about a half-hour after the news.
In that same period, the ICE U.S. dollar index DXY, -0.34% a measure of the greenback against six currencies.
The Fed’s policy committee said Wednesday that “the case for an increase in the federal funds rate has strengthened but decided, for the time being to wait for further evidence of continued progress toward its objectives.”
“Gold has held on to the gains it had booked prior to the announcement as investors continue to question if the FOMC will be able to move by year end,” said Chris Gaffney, president of World Markets at EverBank.
Fed Chairwoman Janet Yellen stated that the fed remains data dependent, “and the recent data just does not support a move higher,” he said. “I’m just not convinced the Fed will be in a better position to raise rates in December.”
Higher U.S. rates are seen as dollar-supportive. That could undermine pricing for gold priced in greenbacks. Conversely, gold tends to gain when the dollar dips. And a rising-rate climate at the Fed can also dull the appeal of gold, which doesn’t offer a yield.
The “Fed inaction appears to affirm the markets dovish view after the Bank of Japan news,” said Robert Haworth, senior investment strategist with U.S. Bank Wealth Management.
Earlier Wednesday, Japan’s central bank took an unexpected step, launching a 10-year interest rate target to step up its fight against deflation.
“There will be higher investment demand for gold as a result of the Bank of Japan’s decision,” said Chintan Karnani, chief market analyst at Insignia Consultants. “Higher gold investment demand in Japan is always a positive for gold.”
Against the yen USDJPY, +0.47% the dollar dropped about 1.2%.
The Bank of Japan also said it would continue quantitative easing until inflation “exceeds” 2%, effectively strengthening its commitment to continue aggressive easing.
For now, gold prices are on the rise, but Haworth said he believes the metal’s prices are in for a “range-bound market.”
“We expect economic data to be sufficiently strong for the Fed to still raise rates this year,” he said. “The market is likely to see support at the lower end of the recent trading range from continued soft economic growth outside the United States.”
In other metals trading, December silver SIZ6, +1.68% climbed 49.1 cents, or 2.6%, to settle at $19.768 an ounce. December copper HGZ6, +1.81% however, edged down by a penny, or 0.5%, to $2.155 a pound. October platinum PLV6, +1.66% added $17, or 1.7%, to $1,047.90 an ounce, while December palladiumPAZ6, +2.35% rose 40 cents, or less than 0.1%, to $683.90 an ounce.
By MYRAP. SAEFONG & RACHELKONING BEALS
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