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James Hyerczyk
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Gold

Gold futures are edging higher on Thursday and appear to be poised to breakout to the upside, but traders seem to be waiting for a catalyst that will encourage speculators to buy strength and weak shorts to aggressively abandon positions.

Shortly before the regular session opening, lower Treasury yields and a weaker U.S. Dollar are underpinning prices as traders await the release of the U.S. Weekly Initial Claims report at 12:30 GMT that could be the catalyst to launch the widely expected breakout move.

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At 11:15 GMT, June Comex gold futures are trading $1748.30, up $6.70 or +0.38%.

Fed Minutes Reinforce Expectations of Low Interest Rates for Some Time

Gold could be garnering some support from Wednesday’s Fed minutes that reinforced expectations that interest rates would remain low for some time.

Federal Reserve officials indicated at their last meeting that easy policy will stay in place until it produces stronger employment and inflation, and won’t be adjusted based merely on forecasts.

The Federal Open Market Committee (FOMC) on Wednesday released minutes from the March 16-17 meeting as investors look for indications about where policy may be heading in the future.

The meeting summary indicated that while officials saw the economy gaining substantially, they see much more progress needed before ultra-easy policy changes.

Members said the $120 billion a month in bond purchases “were providing substantial support to the economy.”

“Participants noted that it would likely be some time until substantial further progress toward the Committee’s maximum-employment and price-stability goals would be realized and that, consistent with the Committee’s outcome-based guidance, asset purchases would continue at least at the current pace until then.”

The adherence to “outcome-based guidance” is a pledge that the Fed will wait until the economy shows “substantial further progress” toward the dual goals of full employment and inflation that runs around 2%.

The guidance is a shift in policy for the central bank, in which it previously would adjust policy in anticipation of inflation. The minutes said members agreed that changes in policy “should be based primarily on observed outcomes rather than forecasts.”

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Helping to underpin gold is the Fed’s comment that they see the economy strong at the beginning of 2022. However, that comes with the cost of rising inflation, which can get out of hand. Some speculators are betting at this time that this could launch the next meaningful rally in gold.

“Investors are expecting the Fed will have to hike interest rates as early as January 2022 as it becomes a huge task once inflation starts going out of control.”

Nonetheless, Fed Chair Powell is assured that the central bank has the tools to fight inflation before it gets reaches that point.

For a look at all of today’s economic events, check out our economic calendar.

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