Gold to rise after Fed move

AP Photo/Michael Probst

AP Photo/Michael Probst

Published Mar 16, 2017

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Singapore - Gold will rise after the Federal Reserve

pledged to stick to its gradual pace of tightening as negative real interest

rates deepen and weigh on the dollar, according to  Wayne Gordon,

executive director for commodities and forex at UBS Group AG’s wealth

management unit.

The Fed raised rates by a quarter percentage-point

Wednesday, and policy makers pencilled in two more quarter-point increases

this year and three in 2018, unchanged from projections in December. Chair

Janet Yellen said the central bank was willing to tolerate inflation

temporarily overshooting its 2 percent goal and intended to keep its policy

accommodative for “some time.”

“Last night was really setting the scene for the next

three-to-six months,” Gordon said in a Bloomberg TV interview. “Yellen was

very, very clear” that although she sees risks to the economy as balanced and

sounded more optimistic, she’s going to stick to three rate hikes this year and

three next year, he said. “That means real interest rates go deeper into

negative territory in the U.S., that means a weaker US dollar and it means a

better gold price.”

Gold is up almost 7 percent this year as investors favoured

haven assets amid political risks such as the Donald Trump presidency,

elections in Europe and the Brexit process. Precious metals are top of Morgan

Stanley’s commodity picks. But Societe Generale recommends selling on rallies

as it sees gold declining amid further tightening by the Fed and limited impact

from political events.

Spot bullion added 0.4 percent to $1 224.40 an ounce by

9:30 a.m. London time on Thursday after jumping 1.7 percent a day earlier, the

most in six months, on the Fed rate outlook. UBS sees gold at $1 300 this year,

while SocGen has forecast an average of $1 125 in the fourth quarter.

Policy makers forecast inflation will reach 1.9 percent

in the fourth quarter this year, and 2 percent in both 2018 and 2019, according

to quarterly median estimates released with the Federal Open Market Committee

statement. The Fed’s preferred measure of inflation rose 1.9 percent in the 12

months through January, just shy of its target.

BLOOMBERG

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