Gold extended its climb above $1,330 an ounce on Wednesday after the U.S. Federal Reserve left interest rates unchanged as expected and the dollar pared gains against a basket of major currencies.
"Gold has defied the marginally hawkish tone of the FOMC statement turning higher and pushing for a close above $1,335, which could prophesy the return of bullish sentiment," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
Gold is particularly sensitive to rising U.S. rates, which would lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
"Our economists are expecting a rate hike in December, but if the Fed starts to sound hawkish now, that could weigh on gold," UBS analyst Joni Teves said before the statement was released. "There are downside risks here."
After some back and forth, gold traders ultimately (for the day, anyway) interpreted the short after-meeting news release as dovish, meaning that rates were staying put for a while longer. Gold at 3:30 in New York was up 1.30%.
So, the big questions are this for the remainder of this week and for the next: Will gold sustain its rally and find longer term strength? Will equities fall back, consolidate and go sideways into August, a notoriously slow and therefore volatile trading month?
Reference: Reuters, KITCO
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