Gold Sees Little Reaction As Fed Sees Slower Growth, But Strong Fundamentals

Neils Christensen  

Wednesday May 03, 2017 14:05

(Kitco News) - The gold market is seeing little change in initial reaction, hovering just off session lows following the Federal Reserve’s monetary policy decision.

As expected, the U.S. central bank has left interest rates unchanged in its current range between 0.75% and 1.00%; however, the central bank has walked a fine line on its economic outlook, acknowledging that growth has softened but underlying fundamentals remain strong.

“The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term,” the statement said. “Near-term risks to the economic outlook appear roughly balanced.”

Gold prices were hovering just above session lows ahead of the decision and are relatively unchanged following the release of the statement. June Comex gold futures last traded at $1,250.50 an ounce, down 0.52% on the day.

Negative for gold is the fact that the Federal Reserve still sees a path of higher interest rates this year.

“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate,” the statement said.

Economists note that while a June rate hike is on the table, it will all depend on the data, giving new urgency to Friday's nonfarm payrolls report.

"The Fed left all the options on the table without committing to anything," said Adam Button, currency analyst at Forexlive.com

Prattle, a text analytics company that quantifies complex language such as central bank statements, gave the latest fed statement a neutral score with a slight hawkish tilt, which could ultimately be gold negative.

"Weak Q1 growth was discounted as ‘transitory,’ thereby suggesting that Fed policymakers are poised to become more hawkish if conditions improve as they expect,” said Prattle CEO Evan Schnidman. “The statement was somewhat more hawkish than many analysts anticipated, thereby leaving the door firmly open for a June rate hike."