Gold, equities rally on doveish FOMC statement

Otmane El Rhazi from The Bullion Desk.

Gold, copper and equities jumped on Wednesday after the Federal Reserve downgraded its view on the US economy, whiich could indicate that interest rates might rise more slowly that previously expected.

The Federal Open Market Committee (FOMC) today removed its pledge to be “patient” with its monetary policy, but it did say that an April rate hike is unlikely.

“The committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labour market and is reasonably confident that inflation will move back to its two percent objective over the medium term,” the FOMC statement said.

“This change in the forward guidance does not indicate that the committee has decided on the timing of the initial increase in the target range,” it added.

The members of the Fed’s policy board are locked in what’s become an increasingly public debate on when will be the right time to raise interest rates, which have been near zero since December 2008. The current market consensus is that the first hike will happen sometime in the second half of this year.

But perhaps more interestingly, the FOMC noted that “economic growth has moderated somewhat” over the past month, which is a significant downgrade from the last statement wherein it said that activity rose “at a solid pace”.

“Compared to expectations, this is a strongly doveish statement and that’s why we’re seeing most markets head higher. They really did backtrack a little today – I would say that a June increase is still possible but it’s now less likely,” a US-based future trader told FastMarkets.

In the markets, gold futures for April delivery on the Comex division of the New York Mercantile Exchange rose to $1,172.10 per ounce, which is $20 higher than the pre-FOMC level.

The most-actively traded Comex copper futures contract rose by about three cents following the statement to $2.5905 per pound, while light sweet crude (WTI) futures were at $43.11 per barrel, which was still deep in the red but well above the session low of $42.03.

The dollar has moved sharply lower – it was last down 1.56 percent at 1.0762 against the euro, while the Dow Jones industrial average and S&P 500 reversed earlier losses, climbing by 0.72 percent and 0.55 percent respectively.

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