On June 11, gold futures rallied as the Federal Reserve vowed to maintain interest rates lower for longer. Also, the surge was sparked by investors tracking various signs of a resurgence in infections in some of the US states.
The precious metal pushed higher after Fed Chairman Jerome Powell said that the Fed is committed to doing everything that it can for as long as it takes to cushion the US economy against the effects of COVID-19.
Almost all of the officials’ forecasts are maintaining the rates near zero all through 2022. The central bank also said that it will at least maintain the current rate of bond purchases. Head of commodities & Asia Pacific currencies at UBS Group AG, Dominic Schnider, said:
“The conditions are here for gold still going to $1,800. The metal has support with rates staying where they are for longer, and real rates expectations potentially shifting more negative.”
At 6:43 a.m. in New York, Comex gold futures for August delivery traded 1% higher at $1,738.20 an ounce. It extended this week’s advances as new worries and fears emerge over an ailing global economy. The gold-backed exchange-traded funds (ETFs) returned to buying after four days of significant net outflows amid this risk rally that stalled after the Federal Reserve’s meeting.
Spot gold lost around 0.4% after gaining 1.4% on June 10 as some of the traders took profits and the dollar rebounded. The upside for the prices was somehow limited on Thursday after three days of advances. Markets priced in their expectations for the Fed before the meeting, according to the head of precious metals trading at Marex Spectron, David Govett.
Before the Fed meeting, Goldman Sachs Group Inc. Predicted that bullion would rise to $1,800 an ounce in the next 12 months. Goldman Sachs said that gold may breakout beyond $2,000 in the case that inflation expectations may outpace the rise in nominal rates. That may resemble what happened in the third quarter of 2009.
Gold futures are yet to reach this year’s peak of $1,789 reached in April even with recent advances. That was the highest price since 2012. Some of the investors are disappointed since the Fed stopped short of embracing the yield-curve control.
That move would have acted as a strong trigger for gold, according to Ole Hansen at Saxo Bank A/S. Hansen is still bullish on gold. He added:
“So being the devil’s advocate I worry a bit why the metal hasn’t responded better than it did.”