Gold News

Gold Recovers from 3-Month Low as Fed Fails to Signal End of Rate-Cutting Campaign

From Chris Mullen at

Gold Prices fell Wednesday to a new 3-month low of $861.95 by midday in London before rallying to find a small gain at $876.00 early in New York.

Gold then fell back off into the close and ended with a loss of 1.36% for the session, its lowest finish since mid-Jan.

The Fed cut both its key Fed funds target and the "discount" charged to New York banks by 0.25% as expected. There were two dissenters – again Richard Fisher of the Dallas Fed, and Charles Plosser of Philadelphia. They preferred no change in the Fed funds rate.

On the data front, the private-sector ADP payroll report showed 10,000 growth for April against the 60,000 loss forecast.

US economic growth in the first quarter was pegged at 0.6% annualized, the slowest rate since the recession of 2001. Employment costs rose faster than expected at 0.7% between Jan. and March.

In its accompanying statement the Fed's Open Market Committee did not necessarily imply a halt to their recent campaign of rate cuts. But it did remove the phrase “downside risks to growth remain” while saying economic activity currently remains weak.

They also noted that some indicators of inflation have risen and that uncertainty about the inflation outlook remains high, but they see inflation moderating and will monitor it closely. In closing, the Fed said they will act as needed to promote growth and price stability.

All told, this pretty much leaves the door wide open for next meeting’s policy. Economic data and other market developments over the coming weeks will likely make significant impacts on the markets as traders judge how it may impact the Fed’s next scheduled decision on June 25th.

Back in Wednesday's markets, crude oil fell after US crude supplies built a larger than expected 3.8 million barrels, gasoline inventories fell 1.5 million barrels, distillates built 1.1 million barrels, and refinery utilization fell 0.2% to 85.4%.

The US Dollar index plummeted and Treasuries soared as the market digested the Fed’s statement – less hawkish than expected.

The Dow, Nasdaq, and S&P traded nicely higher before the Fed’s statement and initially rose to new highs after, but they soon erased their hefty gains and ended modestly lower on uncertainty about market developments and Fed actions heading forward.

Silver fell to $16.359 and rose to $16.78 before it also fell back off into the close and ended with a loss of 0.36%.

Both metals then rose in after hours access trade following the Federal Reserve’s interest-rate cut to 2.0%, more than erasing the day’s losses by the start of Asian trade.

The Gold Price in Euros meantime fell to €554, platinum lost $6.50 to $1915.50, and copper gained a few cents to about $3.93.

Gold and silver equities rose over 2% at the open before they fell back near unchanged ahead of the Fed’s statement. They then rose to new highs for the day and closed with about 3% gains.

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Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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