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Gold gains ahead of Fed meeting

The gold price bucked recent trends ahead of the Federal Reserve’s policy meeting
The Eccles Building where the Federal Reserve is based
Analysts don't expect the Fed to make any major policy changes this month

The price of gold managed to reverse the recent downtrend, clawing back some of its recent losses as the dollar slipped ahead of the latest Federal Reserve policy meeting.

The yellow metal was further boosted by dovish comments from the Bank of England which implied that stimulus is more likely after Brexit hurt the economy more than expected.

The Fed is meeting today and tomorrow (Tuesday and Wednesday) to discuss the economy and any policies that could change as a result.

Analysts aren’t expecting any significant policy changes at this meeting, but what is said could give an indication of what may happen for the rest of 2016.

Speculation that there could be a rise in interest rates over the coming months has depressed the price of gold, and analysts estimate there is around a 47% chance of a rate hike before the year is out, up from only 41% less than a week ago.

Gold is particularly sensitive to a rise in interest rates as it would increase the opportunity cost of holding non-yielding bullion, while also the bolstering the dollar which gold is priced in, making the metal more expensive to foreign currencies.

The Fed has previously intimated that it would indeed raise interest rates if the economy continued to show signs of recovery, and recent positive data has fanned the flames of speculation, leading to a decline in the price of gold.

“There are a lot of eyes on central banks at the moment,” said Simona Gambarini, commodities economist at Capital Economics.

“We don’t expect the Fed to do much at the moment, but we’re likely to action taken by the Banks of England and Japan.”

Shortly before UK market close, gold was up US$5 to US$1,320, silver was up 9c to US$19.63, while platinum was up US$9 to trade at US$1,091.


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