Fed’s pledges to keep interest rate low through 2023, is supporting gold along with other riskier assets
Gold prices rallied overnight and are now trading near $1,748 which is up more than 4% from the $1,673.30 low registered in the first week of March. The Fed has pledged to keep its benchmark overnight interest rate near zero, despite a surge in inflation expectations.
The Fed expects inflation to rise to 2.4% in 2021 which is much higher than the target inflation rate of 2%, however, it expects it to slow to 2% in 2022. It also raised its forecast on GDP growth this year to a 6.5% annualized rate, from 4.2% which will be the strongest growth in nearly 40 years.
Also, the unemployment rate is now seen falling to 4.5% by the end of this year, compared to the projection in June of 6.4%. It also expects a bigger drop in unemployment next year. The Fed projections are indicating a speedy economic recovery post COVID-19.
The Fed sounded significantly dovish in the statement. However, in yesterday’s meeting announcement, the Fed officials made no mention of recent rises in bond yields, or any effort to combat those movements. Gold price movement is likely to be capped by strength in government bond yields.
Gold which bounced from the recent low of $1673.3 is likely to face stiff resistance near 50 days EMA at $1,781 while it may find support levels around $1,715 and $1,687.