Gold and other precious metals-related exchange traded funds could continue to gain momentum as the Federal Reserve takes a more dovish stance, but a low inflation outlook may keep a lid on gains.
Gold ETFs, including tthe SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), were up 0.3% Wednesday after the Fed announcement. Comex gold futures were relatively flat at $1,119.8 per ounce.
Meanwhile, the ETFS Physical Palladium Shares (NYSEArca: PALL) gained 1.3% as the palladium spot price was 1.6% higher to $501.6 per ounce. The ETFS Physical Platinum Shares (NYSEArca: PPLT) increased 0.4% as the platinum spot price added 0.9% to $881.9 per ounce
The Fed held off on a rate hike at its January meeting and gave no indication that it would steer from its interest rate normalization path, reports Jeff Cox for CNBC.
The Federal Open Market Committee, though, did acknowledge that it was “closely monitoring” the volatility, which has added to speculation of a further rate hikes any time soon.
Precious metals have been weakening last year on fears of higher interest rates as the hard asset does not offer a yield and would be less appealing to investors.
Recent volatility has also helped support gold as a safe-haven asset, and any further weakness or uncertainty may further bolster the precious metals.
Additionally, the committee revealed that it “would be concerned” if there were signs that inflation was “running persistently above or below this objective.”
The policy is “in line with dovish expectations,” Kathy Jones, chief fixed income strategist at Charles Schwab, told CNBC. “If there’s anything to hold into, it’s the statement about inflation. That’s a relatively new indication of concern that maybe they’re missing that target over a longer period of time. That would argue for easier policy. That’s kind of a new perspective for them.”
Inflation is expected to remain low, in part due to declines in energy prices, but the Fed expects inflation to rise to 2% over the mid-term once labor markets strengthen.
SPDR Gold Shares
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.