Gold’s Rally Fizzles As Fed Cuts Rates Without Promise of More Easing

 (Jul 31, 2019 - Barani Krishnan)

Investing.com – Gold prices fell on Wednesday after a four-day rally but still settled July higher for a third straight month of gains. But the market could retreat further in the coming days after the U.S. Federal Reserve cut interest rates as expected but without indicating in its statement if further easing would follow.

Spot gold, reflective of trades in bullion, traded at $1,419.30 per ounce by 2:10 PM ET (18:10 GMT), down $10.40, or 0.7%, on the day.

Gold futures for August delivery, traded on the Comex division of the New York Mercantile Exchange, settled down $3.60, or 0.3%, at $1,426.10. But the contract settled the current month up 2.2%, adding to the gains of 6.8% in June and 1.6% in May. In July, Comex futures hit six-year highs of $1,454.35. The December contract, now generating the biggest trading volume, settled down $4 to $1,437.80.

The Fed announced a 25-basis point rate cut, the first since the 2008-2009 financial crisis, to preserve a record decade-long expansion of the U.S. economy.

But even so, the Fed did not immediately indicate if it would cut rates by another quarter percent point in September, as many traders hoped. That was a sign that the gold could retreat from its highs in coming days.

The central bank’s Federal Open Market Committee said it “will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

“This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments,” it added.

John Hardy, strategist at Saxo Bank, said guidance would be key for markets that want to know whether this will be a one-off cut or the beginning of a series.

“The Fed may not want to encourage asset market froth but, then again, any linking of policy to other factors, like the strong U.S. dollar, would allow the market to draw its own conclusions that the Fed will continue to cut,” he said.

Fed Chairman Jay Powell’s news conference after the Fed announcement, scheduled at 2:30 PM ET, will be closed watched for cues on the central bank’s road map for further easing.