FOMC Statement Causes No Volatility In Gold

Ahead of the FOMC statement on Wednesday afternoon gold was trading at 1250.85 seeing a gain of just about $7.50 while silver added 170 points to trade near its highest level at 17.280. Platinum continues to trade near recent highs at 1026.90. In the days leading up to the Fed decision traders were sure that the members would make no changes at this meeting but the excitement would be in the wording of the statement and seeing if the Fed left the door open to an increase at its June meeting.  The US dollar offset golds rises to fall 14 points exchange at 94.32. The greenback had been falling on lackluster economics data over the past few days. Today’s climb in GDP and the better than expected trade balance kept golds gains to a minimum.

The Fed held rates at 0.50% as the US dollar rallied on the immediate release of the statement. The US dollar surged to 94.50 reversing losses to gain 7 point as gold gave back some of today’s gains to trade at 1246.50.  The statement was rather bland.

The statement read:

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

A survey released by the Gold Fields Mineral Services today showed gold demand down 29% in the first quarter to 781 mt, down from 1,097 mt in Q4 2015. They noted especially weak demand in China and a 56.3% drop in Indian gold consumption compared to the same quarter a year earlier.

Marketwatch ran an interesting analyst on Wednesday looking at the rally in platinum which has been trading near its lowest point in a month since the beginning of the year.  Buy platinum the article read. Platinum has already crushed gold in 2016, advancing about 22% vs. 17% for gold.

This trend is likely to continue for a simple reason. Historically, platinum often sells for about 1.5 times the value of gold per ounce. Recently, though, it’s sold for about 80% the price of gold. This discount may well continue to close — as it has so far this year — and then revert to a premium. As this happens, platinum will keep outperforming gold.

This is a classic “reversion to the mean” story. “It’s pretty rare for platinum to be below the price of gold,” agrees Ryan McIntyre, an analyst with Tocqueville Asset Management, who is also bullish on platinum.

The Volkswagen emissions scandal has investors thinking that demand for its diesel-engine cars will be in trouble for a long time. Platinum is essential for catalytic converters used with diesel engines. (In contrast, in gasoline engine converters, palladium can substitute for platinum.) So if demand for diesel cars goes down, demand for platinum would, too.