Gold Reclaims $1,700 After FOMC Statement Signals Fed More Dovish Than Thought

January 25, 2012 - Forbes

Gold rocketed above $1,700 an ounce Wednesday for the first time since mid-December when a statement from the Federal Open Market Committee suggested that policy-makers may be even more dovish than financial markets had expected.

Furthermore, gold generated upward technical momentum with a so-called “outside day” reversal higher on the charts and also by closing the pit session above a number of moving averages.

The FOMC indicated that it intends to keep interest rates at “exceptionally low levels” until late 2014, compared to guidance of mid-2013 previously. Additionally, the FOMC signaled that further accommodation would likely come from adjustments to the balance sheet, said Nomura Global Economics.

February gold futures, trading at $1,658 an ounce on the Comex division of the New York Mercantile Exchange just minutes before the FOMC statement, have since shot as high as $1,704.50. This was their first time above $1,700 since Dec. 12. As of 2:32 p.m. EST, the February contract was up $35.30, or 2.2% to $1,699.80. Other precious metals also rose, with March silver up $1.035, or 3.3%, to $33.01 an ounce. It hit a $33.32 high that was its most muscular level since Dec. 2.

Ahead of the meeting, a number of analysts said they envisioned a limited reaction by gold since the market has already factored in an expectation for low rates until mid-2014. But by pushing back their anticipated start of tightening to late 2014, policy-makers showed they are even more dovish than thought.

“We were all under the assumption that rates would be held at a low level until 2013, but now with the date extended to 2014, it’s inherently bullish for gold,” said Ralph Preston, senior market analyst with Heritage West Financial.