Hawkish FOMC statement boosts gold safe-haven appeal

Jan 28, 2016 - 2:35 PM GMT
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Gold futures climbed amid follow-through safe-haven buying after the Federal Reserve failed to reassure markets in its monthly statement.

Gold for February delivery on the Comex division of the New York Mercantile Exchange was last up $6.10 or 0.6 percent to $1,121.90 per ounce. Trade has ranged from $1,117.20 to $1,125.70.

At yesterday’s Federal Open Market Committee (FOMC) conclusion, the policy-board released its current assessment of the domestic and international economic conditions.

The organisation maintained its current federal funds target of two percent by year-end, which was interpreted as unnecessarily hawkish in light of the recent global equities rout and jittery market conditions.

“As noted earlier, although the Fed statement was not as dovish as what many wanted to hear, gold took its cue instead from the US stock market’s ongoing weakness where rallies are simply melting away,” Edward Meir, an analyst at INTL FCStone, said.

The tone and rhetoric sent American markets in a downturn and the uneasiness persisted this morning as Germany’s DAX and France’s CAC-40 were down 1.8 percent and 1.3 percent respectively.

“At this point, we can only reiterate what we have been saying in recent commentary, namely, that in view of the very poor outlook for equities, gold should do better over the short-term,” Meir added.

Even with large amounts of foreign capital seeking stability in US markets, the dollar further weakened and last trading at $1.0922 against the euro, down 0.3 percent.

“We still feel that the dollar has fully anticipated the first couple of US interest rate rises; if the global macro picture means a second rise is delayed, some weakness may be seen in the dollar (once geopolitical tensions ease),” William Adams, Head of Research at FastMarkets, said. “If so, gold and other commodities could get some lift, which could trigger short-covering.”

A majority of market participants aren’t expecting another hike till September, with less than 20 percent forecasting the Fed reaches its target of four hikes in the calendar year, according to the CME Group FedWatch.

Meanwhile in US data, Core Durable Goods Orders month-over-month in December slipped 1.2 percent, off the estimate of -0.1 percent, Durable Goods Orders over the same period hit -5.1 percent, missing the mark of a -0.6 percent reduction.

Additionally, weekly unemployment claims came in at 278,000, under the economic consensus of 281,000 and more importantly below the psychological 300,000 mark.

As for other precious metals, Comex silver for March settlement dipped 5.9 cents or 0.4 percent to $14.400 per ounce. Trade has ranged from $14.070 to $14.540.

Platinum for April delivery edged up 90 cents or 0.1 percent to $883.0 per ounce, while the most-actively traded palladium contract stood at $497.95 per ounce, down $4.30.

(Editing by Tom Jennemann)