Gold Prices Push Higher In A Delayed Reaction To Hawkish Fed Minutes

February 21, 2018

New York (Feb 21)  In a delayed reaction, gold prices have pushed higher Wednesday despite what some are describing as slightly hawkish minutes from the January Federal Reserve monetary policy meeting.

According to the minutes, Federal Reserve committee members are slightly more optimistic on U.S. economic growth, which could lead to an increase in interest rates hikes.

"Several others suggested that the upside risks to the near-term outlook for economic activity may have increased. A majority of participants noted that a stronger outlook for economic growth raised the likelihood that further gradual policy firming would be appropriate," the minutes said.

Gold prices were relatively flat ahead of the report and only spiked modestly higher in a delayed reaction to the news. April gold futures last traded at $1.337.80 an ounce, up 0.50% on the day.

Senior technical analyst at Jim Wyckoff said that despite the optimistic economic outlook, some traders still see the Fed holding on to its plan of three rate hikes this year in order to let inflation reach the central bank's 2% target. Wyckoff added that higher inflation would keep real rates relatively low, making gold - a non-yielding asset - more attractive to investors.

While the minutes were more hawkish than expected, Royce Mendes, senior economist at CIBC World Markets, said that it doesn’t change the outlook that the central bank will raise interest rates three time this year.

“While acknowledging the lift from fiscal stimulus, the Fed isn't moving away from its gradualist approach,” Mendes said. “However, there are still those on the committee that remain skeptical about the prospects for inflation. Doves continue to contend that policymakers should be patient in trying to coax inflation higher. Overall, our outlook for three rate hikes this year remains appropriate given the balance between upside risks to growth and below-target current pace of inflation, which leaves time for policymakers to use a gentle hand.”


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