Single Minded Focus Exhibited By Gold Traders

Gold continued to gain in Friday’s Asian session. The shiny metal added $10.70 to trade at 1127.70 touching yesterday’s high after the Fed decision. Silver followed gold to trade at 15.065 while platinum dropped over $10 to 974.10. Gold rose to a two-week high on Thursday after the Federal Reserve said it held US interest rates steady following a two-day policy meeting, sending the dollar index to a three-week low.

The US central bank’s decision was a nod to concerns about a weak world economy, saying that an array of global risks and other factors had convinced it to delay what would have been the first rate hike in nearly a decade. It left open the possibility of a modest policy tightening later this year.

Gold was up 0.8 per cent after rising to 1,130.35, the highest since Sept 3. It rose 1.3 per cent on Wednesday in its biggest daily jump since Aug 20.

Gold had been weighed down all year on fears the Fed would soon hike interest rates from record-lows for the first time in nearly a decade. Higher rates could dent demand for non-interest paying bullion, while boosting the dollar.

Following the Fed’s decision on Thursday, the dollar slumped to a three-week low against a basket of major currencies, supporting gold prices. The US dollar is holding at 94.73 in the Asian session.

Bullion’s relief rally, however, might not last long as the central bank’s move to refrain from raising rates this week only adds to the uncertainty over the timing of an eventual rate hike.

The global market volatility that upended investors over the last six weeks may last deep into autumn now that the Fed has decided to keep interest rates unchanged, several equity and fixed income portfolio managers said.

A majority of Wall Street’s top banks now expect the Fed to begin hiking rates in December, according to a Reuter’s poll conducted on Thursday.

The decision by the Federal Open Market Committee is fuelling debate over the strength of the American economy. That’s good news for gold bulls, who have suffered through more than two years of declining prices. Bullion is headed for the first weekly gain in four on renewed demand for a haven.

“Ultimately, lower-for-longer on the rate front will boost precious metals,” Jordan Elise, chief economist at trader Australian Bullion in Sydney, said on Friday. “Gold rallied as the FOMC appeared very dovish — with noticeable concern regarding the outlook for growth and inflation.”

Trading volume was languishing before this week’s Fed meeting, and prices had dropped to near one-month lows. Investors have snubbed precious metals as job growth boosted speculation that the Fed was ready to lift rates, even as inflation remained below the central bank’s target. Spot gold declined 5.5 per cent this year as of Wednesday. Higher rates hurt bullion because the commodity doesn’t pay interest, unlike some competing assets.