Powell’s statements pushes yellow metal higher

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The Federal Reserve’s decision to keep interest rates unchanged, diminish the pace of balance sheet reduction, and the lack of clear forward guidance on interest rates likely fuelled investor demand for gold as a safe-haven asset, driving its price above the $2,300 mark. The rally in gold prices above the Wednesday can be attributed to several factors stemming from the Federal Reserve’s recent announcements and the lack of forward guidance regarding interest rates.

There was a strong demand for gold at the beginning of the trading session. On the Multi Commodity Exchange (MCX), the rates for gold today (June 2024 expiry) opened higher at ₹71,278 per 10 grams. This opening price represents an increase of approximately ₹550 from the previous close. Such a significant increase in the opening price reflects investors increased buying interest and bullish sentiment.

In the international market, the price of gold on the Commodity Exchange Inc (COMEX) on Thursday rose by over 0.75 percent. Gold is currently trading at around $2,328 per troy ounce. This rise in the international price of gold further reinforces the notion of increased demand of yellow metal on a global scale.

Highlights from the Fed meeting

The chair of Federal Reserve addressed a meeting on Wednesday, during which he mentioned that they will decide monetary policy for the year ‘meeting by meeting’, additionally he stated “while adding that slowing the pace of balance sheet runoff and will ensure a smooth transition for money market.”

He further emphasised the Fed’s conviction that monetary policy is adequately restrictive to mitigate inflation and dismissed the possibility of raising rates when queried about it.

The Federal Reserve recently decided to keep the federal funds rate unchanged at the range of 5.25%-5.50%. In their statement, they highlighted that the risks associated with achieving the Fed’s dual mandate, which encompasses employment and inflation goals, have become more balanced over the past year. Despite acknowledging advancements in controlling inflation, they also acknowledged that recent data indicate a halt in this progress.

Fed’s policymakers have made a significant alteration and implemented the notable change to their balance sheet policies. From June, they will decrease their monthly reduction of holdings in US Treasury securities from $60 billion to $25 billion, making a shift in their strategy to balance sheet normalization.