• Gold prices ended higher Thursday for a second straight session, as the dollar slumped and global equities took a turn lower amid signals that an era of easy-money policies adopted by central banks during the financial crisis may be nearing an end.
August gold GCQ7, -0.18% rose $1.60, or 0.1%, to settle at $1,223.30 an ounce, after settling higher Wednesday. September silver SIU7, -1.18% also added 8.7 cents, or 0.6%, to $15.983 an ounce.
• In electronic trading on Wednesday, gold briefly pulled back after the release of minutes from the Federal Reserve confirmed the central bank’s efforts to normalize U.S. monetary policy by lifting interest rates at least once more in 2017 and shrinking its $4.5 trillion balance sheet.
The Fed minutes also pointed to divisions about the precise timing of those moves.
• Meeting minutes “showed that the Fed committee is very much split on how inflation might impact the pace of the interest rate hike,” said Naeem Aslam, chief market analyst at ThinkMarkets UK. “This took the wind out of the dollar.”
“However, the policy makers are still leaning to scale down the size of their balance sheet in the near term and this could be in September,” he said.
• Balance-sheet reductions can have the effect of tightening interest rates because they theoretically remove a big Treasury buyer from the market, pushing bond prices lower and yields higher.
• Those efforts by the Fed come as other monetary policy makers, including the European Central Bank, appear set to broach the topic of paring back their own easy-money efforts.
• Minutes from the ECB released Thursday indicated that it discussed abandoning a vow to accelerate its QE program and worried about expressing confidence in the eurozone economy.
• Thursday’s action in metals appeared to be largely driven by the jitters around the more hawkish stance from global central banks, which were sending yields higher, and driving weakness in the dollar.
• Looking ahead, “While uncertainty in the longer term has the ability to ensure the yellow metal remains buoyant, bulls are fighting against the tide in the short term,” said Lukman Otunuga Research Analyst at FXTM. “Gold remains vulnerable to further downside as long as prices remain below $1240. Weakness below $1,220 may open a path toward $1,214.”
Reference: Market Watch
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