Gold bounces on dovish Fed

The FOMC statement seen as dovish, investors dump USD
Gold is bouncing from the 1304 level and is past the 1,310 level

Flavio Tosti Independent Analyst

Gold is trading at around 1,312 a troy ounce up 0.66% on Wednesday as the FOMC surprised the market with a dovish statement.

The Fed leaves rates unchanged as it was widely expected and a hike in June is still on the cards, however, the Fed may not be eager to keep inflation depressed.

On inflation the Fed says:

“On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

The Fed sees things as “symmetric”. Analysts say that it implies that the Fed will allow inflation to run a bit high before moving hiking rates.

As a reminder, the US macroeconomic data has been rather constructive of late. Core Consumer Price Index (CPI) rose from 1.8% YoY to 2.1% in April while Core Personal Consumption Expenditure (PCE), the Fed's favorite gauge of inflation, increased from 1.6% to 1.9% in April and wage growth stood at 2.7% above 2.5% seen earlier.

The next event of significance that can move gold is the US Non-Farm Payroll scheduled on Friday at 12:30 GMT.

Author

Flavio Tosti

Independent Analyst

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