Gold surges 2% as dovish Fed mins bolster case for delayed rate hike
Investing.com -- Gold futures surged on Thursday enjoying one of their strongest one-day moves of 2015, following relatively dovish minutes from the Federal Open Market Committee's July meeting strengthened the possibility of a delayed interest rate hike from the U.S. central bank.
On the Comex division of the New York Mercantile Exchange, gold for December delivery traded in a broad range between $1,132.20 and $1,153.60 an ounce before settling at 1,152.20, up 24.30 or 2.15%. At one point, gold reached its highest level since mid-July as it continues its recovery from one of the worst downturns over the last two decades. The precious metal is now down roughly 1.85% from its peak of $1,200 an ounce in June.
Gold likely gained support at $1,112.90 the low from August 17 and was met with resistance at $1,166.80 the high from July 10.
Investors continued to digest the minutes from the FOMC's July meeting on Thursday, ones in which the Fed offered no clear indications on an imminent rate hike. The FOMC appears particularly concerned with the deceleration of inflation, as it continues to remain under its long-term targeted goal of 2%. While the Consumer Price Index (CPI) inched up 0.1%, it still fell under analysts' forecasts of a 0.2% monthly gain. The Core CPI Index, which strips out food and energy prices, rose by 1.8% on a yearly basis, also falling below the Fed's target by 0.2%.
The FOMC appears sharply divided on whether inflation is moving close to a level it deems appropriate to start raising short-term rates. The FOMC said by some objectives the inflation data was "not progressing" toward its targeted goal, according to the minutes. Other members, however, said that inflation conditions for a rate hike would be met or could be "met shortly."
The Fed's benchmark Federal Funds Rate has remained at its current level between zero and 0.25% since 2009 at the conclusion of the Financial Crisis. In addition, nearly a decade has passed since the Fed has last raised the benchmark rate.
Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in raising rate environments.
Although Fed chair Janet Yellen has indicated that it is likely the FOMC will lift its benchmark Federal Funds Rate in 2015 if economic conditions continue to improve, the Fed has not said definitively that lift-off will occur in September. Following the dovish reading on Wednesday, a large percentage of inventors now believe it is more likely that lift-off will take place in December.
The minutes also showed that the Fed has expressed mounting concerns with the slumping Chinese equities markets. Several participants in the July FOMC meeting noted that a "material slowdown in Chinese economic activity" could have a spillover effect into the U.S. economy. China is the world's largest producer and second-largest consumer of gold behind India.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.45% to an intraday low of 95.87 in spite of optimistic U.S. employment and manufacturing data. As a result, the index fell to its lowest level in more than a month.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for September delivery jumped 0.291 or 1.92% to 15.475 an ounce.
Copper for September delivery soared 0.038 or 1.68% to 2.314 a pound.
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