Policy decisions set by the Federal Open Market Committee (FOMC) on Wednesday are supporting gold prices. After two days of talks in Washington, Janet Yellen told reporter’s interest rates will remain low for some considerable time once the bond buying stimulus comes to an end.
The announcement by the Fed offered few surprises, but Yellen’s speech did offer signs of encouragement for the market. The Fed Chair said the increase in house prices, an upbeat equity market and an improving global economy will help to stoke growth in the US.
Yellen also confirmed that asset purchases will be cut in “measured steps” and as many market watchers predicted will hold-off raising interest rates too early. The uplift will most likely be left until the second half of 2015 and thus boost the demand for precious metals.
The early reaction from traders was to buy in more gold and as prices creep closer to the $1300 psychological threshold, consumers should act quickly to invest in precious metals before the yellow metal becomes over-inflated in a pressure-cooker market.
Although the FOMC policy decisions offered few surprises, the lack of aggression will support gold prices, analysts say. The US Economy may be strengthening, but the central bank is reluctant to put pressure on long-term yields. This is seen as a positive for equities and other risky investment.
In morning trading on Thursday, market sentiment was with gold and by midday (GMT) the yellow metal had enjoyed a boost in spot price of almost $4 to $1281.30 per troy ounce. Given the direction traders are going, this still looks a good time to buy gold.
Emerging money markets
There is good news for the global economy elsewhere also with a basket of currency enjoying mini-rallies. Equity markets are bullish and a host of nations have joined an “axis of easing” to help quicken growth before the US Fed pulls the plug on quantitative easing later this year.
Trade in developing nations has rallied by 4.8% already this year and the global outlook is looking strong. Emerging markets including Mexico, Chile, Hungary, Turkey and Russia have all cut interest rates together with the Eurozone.
Stocks in Eastern Europe have also enjoyed a rally recently in light of peace talks with Ukraine and Russia. Despite Putin calling for the gas supply to the Ukraine to end, Ukrainian President Petro Poroshenko is scheduled to meet Kremlin officials in the hope they can join forces to end the violence that has devastated the south east regions of the country.
All in all, there is cause for optimism around the world. Although Sunni militants in Iraq are escalating pressures in the Middle-East, the government is receiving support from neighbours Iran and the US. It is hoped the opportunity to collaborate will form a bond between the warring nations and bring peace moving forward.
The greatest threat to the world economy is the debt ceiling which is on the verge of collapse. To protect your financial future, invest in gold whilst prices are still relatively low.