Gold futures price rebounded Thursday, building on support found as Treasury debt yields declined after the Federal Reserve announced its plans to taper its bond purchases on Wednesday.
Gold (Yellow Metal) ended lower Wednesday, but bounced in electronic trade after the Fed, as expected, said it would begin to scale back asset purchases later this month. Chairman Jerome Powell pushed back somewhat against rising market expectations for a policy interest rate increase as soon as the middle of next year, but said it was possible the labor market could improve at a pace that would clear the way for liftoff by the second half of 2022.
Many market participants had positioned themselves “in anticipation of hawkish remarks from the U.S. Federal Reserve. The Fed turned out to be less hawkish than expected, however, allowing the gold price at least to recoup a small part of its losses,” said Daniel Briesemann, analyst at Commerzbank, in a note.
Treasury yields were mostly lower Thursday. Lower yields can be a positive for gold, reducing the opportunity cost of holding a nonyielding asset.
Analysts continue to debate whether the Fed is behind the curve.
“It was a dovish taper and a clear signal that we will have to wait until the summer to hear them admit they are wrong about inflation,” said Edward Moya, senior market analyst at Oanda, in a note. “Wall Street got a bit aggressive with rate hike expectations and while yields should still rise, it might be at a slower pace which is good news for gold.”