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Gold rebounds after US Fed leaves the cost of borrowing unchanged

Thursday, March 17, 2016

The gold price jumped higher again on Wednesday (16 March) after the US Federal Reserve announced its decision to leave interest rates unchanged.

The gold price increased by more than two per cent in the wake of the announcement at 18:00, and by 19.45, it stood at £884.39 per troy ounce, £12 more than it was 24 hours earlier. This morning (Thursday 17), the gold price was £885.78 per troy ounce.

The Fed had been widely forecast to leave interest rates unchanged at the end of its meeting, but gold slipped in price earlier in the week while the market waited to see which way the US central bank would go. The price of the precious metal climbed steadily after the announcement, following a pattern that has seen the gold price increase by around 17 per cent so far this year.

Economic indicators and the price of gold

While the price of gold rose after the Fed’s decision to leave rates on hold, the US dollar fell in value by around 0.6 per cent. Generally, when gold is strong, the dollar is weaker and vice-versa.

So far this year, an unsettled economic picture with continued worries about the strength of the international economy, notably the slowdown in China, has helped add value to gold as a safe haven for investors.

However, figures from the US this week showed that housing data was better than expected and inflation rose more than the market had forecast.

Projections from the Fed after its rates announcement suggest that there may be one or two small increases in the cost of borrowing this year, Reuters reported. That is likely to benefit the strength of the US dollar to the detriment of the gold price.

However, it is difficult to predict what will happen accurately; gold has performed well this year on the back of unexpected volatility in the world markets.

Analyst Brien Lundin told MarketWatch: “Any indications that the Fed is showing less enthusiasm for rate hikes is bullish for gold.

“Any indication that they’ll have to forestall hikes altogether, or even revert to easing, would send gold catapulting higher.”

US Mint probes coin ‘anomaly’

An investigation has started in the US after buyers of 2016 American Eagle gold bullion coins complained of a fault that stops the coins from stacking correctly.

The Mint believes that up to 63,000 of the one troy ounce coins could be affected by the issue, where the image on the ‘heads’ side of the coin is higher than the rim. But rather than calling it a fault, the Mint says it is an anomaly.

The 2016 coins have been available since January and the US Mint will release four different weights of the 22 carat gold 2016 American Eagle proof coins today (17 March).

They will come in one troy ounce, half ounce, quarter ounce and one-tenth of an ounce varieties. The new proof coins, which do not have a maximum mintage, feature Liberty on one side and an eagle soaring above its nest containing its mate and chicks on the other.