Precious Metals Review

“Gold rose to a nine-month high after comments from the Federal Reserve suggested its aggressive cycle of rate hikes is coming to an end.

Fed Chair Jerome Powell said policy makers expect to deliver a “couple” more interest-rate increases before putting their tightening campaign on hold as the central bank raised its
key rate by a quarter point in a widely expected move. The dollar and Treasury yields extended declines on Thursday, pushing gold higher.

The precious metal has rallied for three straight months through January, the longest such sequence since the middle of 2020, largely on signs the Fed was getting less hawkish. The
non-interest bearing asset typically benefits from lower rates.

Swap markets are now pricing in 50 basis points of rate cuts by the end of 2023, which Powell strongly pushed back against. Focus will now shift to US economic data to see if growth is weakening and inflation falling in a way that would trigger monetary loosening.

“Gold rallied after Fed Chair Powell decided to not go hawk on markets and said that the disinflation progress has begun,” Oanda analyst Edward Moya said in a note. “The next big move for gold will come from the next round of inflation data.”

Spot gold added 0.3% to $1,956.40 an ounce as of 8:57 a.m. in London. The Bloomberg Dollar Spot Index declined 0.1%, dropping for a third day. Silver, palladium and platinum all
Gained.”

“The Federal Reserve on Wednesday raised its benchmark interest rate by a quarter percentage point and gave little indication it is nearing the end of this hiking cycle.

Aligning with market expectations, the rate-setting Federal Open Market Committee boosted the federal funds rate by 0.25 percentage point. That takes it to a target range of 4.5%-4.75%, the highest since October 2007.

The move marked the eighth increase in a process that began in March 2022. By itself, the funds rate sets what banks charge each other for overnight borrowing, but it also spills through to many consumer debt products.

The Fed is targeting the hikes to bring down inflation that, despite recent signs of slowing, is still running near its highest level since the early 1980s.

The post-meeting statement noted that inflation “has eased somewhat but remains elevated,” a tweak on previous language.

“Inflation data received over the past three months show a welcome reduction in the monthly pace of increases,” Fed Chairman Jerome Powell said in his post-meeting news conference. “And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path.”

Markets, however, were looking to this week’s meeting for signs that the Fed would be ending the rate increases soon. But the statement provided no such signals. At first, stocks fell in the wake of the announcement, with the Dow Jones Industrial Average tumbling more than 300 points.
However, the market rebounded during Powell’s press conference, after he acknowledged that “the disinflationary process” had started. Major averages ultimately turned positive as market commentary focused on Powell’s somewhat optimistic comments on progress against inflation.

“We can now say I think for the first time that the disinflationary process has started,” Powell said, while also noting that it would be “very premature to declare victory or to think we really got this.”

The Fed’s statement included language noting that the FOMC still sees the need for “ongoing increases in the target range.” Market participants had been hoping for some softening of the phrase, but the statement, approved unanimously, kept it intact.

The statement altered one part when describing what will determine the future policy path.
Officials said they would determine the “extent” of future rate increases based on factors such as the effects so far of the rate hikes, the lags in which policy has an impact, and developments in financial conditions and the economy. Previously, the statement said it would use those factors to determine the “pace” of future hikes, a possible nod that the committee sees an end to the increases somewhere, or at least a continuation of smaller moves ahead.

In 2022, the Fed approved four consecutive 0.75 percentage point moves before going to a smaller 0.5 percentage point increase in December. In recent public statements, multiple officials said they think the central bank at least can scale back on the size of the hikes, without signaling when they could end.

While it was raising its benchmark rate, the committee characterized economic growth as “modest” though it noted only that unemployment “has remained low.” The latest job market assessment omitted previous language that employment gains have been “robust.“

Otherwise, the statement remained intact from previous messages as the Fed continues its efforts to arrest inflation.”