By Kitco News
Thursday November 17, 2016 08:15
(Kitco News) - Gold prices are holding on to gains Thursday morning despite comments from Federal Reserve Chair Janet Yellen that supports an interest-rate hike in December.
Yellen is scheduled to testify before the Joint Economic Committee in Washington Thursday morning and her testimony was released two hours ahead of her appearance. In her prepared statement, Yellen said that the committee views that it could become “appropriate relatively soon” to raise interest rates as the U.S. economy continues to expand.
She also warned that a delay in a hike could have some negative consequences.
“Were the FOMC to delay increases in the federal funds rate for too long, it could end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of the committee's longer-run policy goals. Moreover, holding the federal funds rate at its current level for too long could also encourage excessive risk-taking and ultimately undermine financial stability,” she said in her statement.
Although it appears Yellen is preparing the government for a rate hike next month, she also reiterated that monetary policy will remain loose with only “gradual increases in the federal funds rate over time.”
Yellen also gave an optimistic view of the economy, saying, “U.S. economic growth appears to have picked up from its subdued pace earlier this year. After rising at an annual rate of just 1% in the first half of this year, inflation-adjusted gross domestic product is estimated to have increased nearly 3% in the third quarter.”
Gold prices were trading in positive territory ahead of Yellen’s statement and are relatively unchanged in initial reaction. December gold futures last traded at $1,226 an ounce, up 0.17% on the day.
Analysts note that there was only one surprising comment in Yellen’s statement as markets are pricing in a 90% chance that the U.S. Central bank to raise interest rates in December; however, Yellen said that she sees a low risk of the Fed falling behind the inflation curve.
“Because monetary policy is only moderately accommodative, the risk of falling behind the curve in the near future appears limited, and gradual increases in the federal funds rate will likely be sufficient to get to a neutral policy stance over the next few years,” she said.
This could be negative for the gold market as commodity analysts are bullish on the yellow metal in 2017 as the Fed’s monetary policy is not expected to keep up with inflation pressures.