Gold price extends post-Fed advance as dollar churns

New York (Mar 22)  Gold futures gained sharply Thursday after settling a day earlier at their highest levels in a week, with the precious metal tracking a dollar limited by signs the Federal Reserve will stick to a more-conservative script with interest-rate policy this year.

The central bank stuck to its December forecast for three rate increases in 2018, but pushed up its expected rate path in 2019 and 2020. Investors across financial markets had priced in expectations the Fed would raise its benchmark rate by a quarter-percentage point, which it did on Wednesday. See the live blog and video of Powell’s press conference

Investors will now turn their focus to the Bank of England’s monetary policy statement, due at 12 p.m. London time, or 8 a.m. Eastern Thursday. The U.K. central bank isn’t expected to make any significant move, but policy makers will be watched for signs they will raise interest rates in May.

Against this backdrop, April gold GCJ8, +0.58% jumped $7.80, or 0.6%, to $1,329.30 an ounce. The contract finished Wednesday at $1,321.50 an ounce, then extended that gain in after-hours trading in reaction to the Fed. Gold had rebounded from Tuesday’s finish at a nearly three-week low.

The ICE U.S. Dollar Index DXY, +0.04%  was little changed at 89.71 but had spent time both higher and lower so far Thursday. Gold and the dollar typically move inversely, as moves in the U.S. unit can influence the attractiveness of commodities to holders of other currencies.

Higher interest rates usually drive the dollar north and can reduce the appeal of nonyielding precious metals, but gold holders are also watching to make sure a rate-hiking Fed stays ahead of the curve in staving off inflation, against which gold typically acts as a hedge.

“The one commodity which will not be insulated from any negative impact of Fed tightening is gold,” said Caroline Bain, chief commodities economist with Capital Economics. “Although the consensus is coming round to our view that the Fed will tighten four times this year, we do not think this has been factored into the gold price.”

Her reasoning? Higher rates raise the opportunity cost of holding assets, such as commodities, which do not pay interest. Second, they can lead to lower economic activity and, third, they can boost the value of the U.S. dollar, particularly if interest rates are low elsewhere.

Around the complex, May silver SIK8, +0.65%  changed hands at $16.530 an ounce, up 0.7%.

May copper HGK8, +0.07%  rose 0.3% to $3.066 a pound. April platinum PLJ8, +0.42% rose 0.5% to $955.60 an ounce, while June palladium PAM8, -0.33%  slipped 0.3% to $983.95 an ounce.

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