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(Kitco News) – The Federal Reserve is maintaining its tightening bias; however, the hawkish stance is not enough to worry the gold market as the price holds its elevated levels below $2,000 an ounce.
Although the Federal Reserve left interest rates unchanged following its Wednesday monetary policy meeting, Chair Jerome Powell said that it is still unclear if the committee is done raising interest rates.
“Is monetary policy restrictive enough to bring inflation down to 2%? That is what we are asking ourselves,” said Powell in his press conference following the monetary policy decision.
Powell also said that decisions will be made meeting-by-meeting.
Powell’s confirmation of the Fed’s tightening bias caused gold prices to briefly drop to a five-day low; however, the precious metal quickly recovered and continues to hold support above its 200-day moving average.
Edward Moya, senior market analyst at OANDA, said that while the Fed remains hawkish, it’s not hawkish enough to spook markets.
“The Fed did not rule out a rate increase in the coming months, but swap contracts showed traders weren’t convinced. The Fed tried to deliver a hawkish hold, but Wall Street is not believing additional tightening will happen this cycle,” he said.
Moya noted that easing fears of Israel’s war spreading beyond Gaza could be having a bigger impact on gold than the Fed’s monetary policy.
He added that lower-than-expected funding needs from the U.S. Treasury Department is also lowering the temperature in the gold market.
“Federal deficit concerns were a bigger driver for gold than elevated yields,” he said.
Although the Federal Reserve will maintain a restrictive monetary policy for the foreseeable future, Powell said that risks of doing too much vs doing too little have become more balanced. However, he added that the committee remains focused on bringing inflation down to its 2% target.
As for risk to the economy, in a brief comment, Powell noted that a potential government shutdown poses a risk. At the same time, while Israel’s war with Hamas has been a terrible humanitarian crisis, it appears to have a limited impact on the U.S. economy, particularly as oil prices remain roughly contained.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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