Yellen restores faith in gold

(March 17, 2016 - by Eddie van der Walt and Luzi Ann Javier, Bloomberg)

At a stroke, Janet Yellen revived gold investors’ faith in the metal and the miners who produce it.

The Federal Reserve on Wednesday signaled it won’t raise interest rates as much this year as forecast in December amid weakening global economic growth, sending gold prices surging just after futures capped the longest slump since November. Lower rates are a boon for gold, which becomes more competitive against interest-bearing assets.

“‘The Fed was more dovish than the market expected, and we’ve seen market expectations of a Fed rate move pared back,” said Grant Sporre, an analyst at Deutsche Bank in London. “Gold is no longer going to $1 000 and the longer the Fed stays dovish, the better for the metal.”

After advancing this year through early March as turmoil in financial markets helped boost demand for the metal as a store of value, gold’s rally had been sputtering. Futures posted losses in seven of the past eight sessions, as signs of an improving US economy reignited speculation that rate increases were looming. In dialing back expectations, the Fed said economic and financial developments continue to pose risks.

Odds Shrink

Bullion for immediate delivery climbed 0.6% to $1 269.84 an ounce by 11:06am in London, according to Bloomberg generic pricing. It rose as much as 2.6% on Wednesday following the Fed announcement.

The Fed kept the target range for the benchmark rate at 0.25% to 0.5%, according to a statement Wednesday following a two-day meeting. Policy makers’ updated projections implied two quarter-point increases this year, down from four forecast in December. Odds of an interest-rate increase in June fell to 38%, from 54% on Tuesday.

The FTSE/JSE Africa Gold Mining Index soared 6.4% to the highest since February 2013, led by gains in Sibanye Gold, which benefited from a higher metal price and weakness in South Africa’s currency over the past year.

Investors increased holdings in exchange-traded funds backed by the metal for a second day, the total jumping 0.2% to 1 738.3 metric tons, according to data compiled by Bloomberg as of Wednesday.

In other metals:

Silver jumped 0.7% to $15.72 an ounce. Platinum rose a second day, adding 0.8% to $984.90 an ounce, while palladium climbed 0.5% to $585.10 an ounce, after advancing to the highest since November 11.