Gold Prices Rise as Federal Reserve Keeps Interest Rates Low

Strategic Insights -

As the Federal Reserve announced that it would leave the fed funds rate unchanged at a record low, gold futures prices climbed slightly higher on Wednesday morning. The decision, taken in the wake of softer-than-expected U.S. producer price index data, has encouraged investment in gold as a risk play against the perceived safety of the U.S. dollar. Market analysts, including MF Global's Tom Pawlicki, have noted that the low interest rate climate is positive for gold, as it fuels demand and makes the dollar-denominated metal less expensive for foreign buyers.

Key Takeaways:

  • Gold futures prices rose by $2.20, or 0.2%, to $1,124.70 an ounce on the Comex division of the New York Mercantile Exchange.
  • The Federal Reserve left the fed funds rate unchanged at a range of 0.0% to 0.25%, a record low.
  • The softer-than-expected producer price index data gave the Federal Reserve room to keep interest rates low to fuel the economic recovery.
  • Market analysts, including Tom Pawlicki of MF Global, believe the low interest rate climate is positive for gold as it encourages investment in the metal as a risk play.
  • A weaker U.S. dollar, due to the low interest rate policy, makes gold less expensive for foreign buyers, boosting demand.
  • The ICE Futures U.S. dollar index was recently down 0.005 point, or 0.006%, at 79.748 points.

Statistics:

  • Gold futures prices rose by $2.20, or 0.2%, to $1,124.70 an ounce.
  • The Federal Reserve left the fed funds rate unchanged at a range of 0.0% to 0.25%, a record low.
  • The producer price index for finished goods dropped by a seasonally adjusted 0.6% on the month in February.
  • Economists were expecting a more moderate drop of 0.3%.
  • The ICE Futures U.S. dollar index was down 0.005 point, or 0.006%, at 79.748 points.

Sources:

  • Dow Jones Commodities News via Comtex
  • Comex division of the New York Mercantile Exchange
  • Federal Reserve
  • MF Global
  • Labor Department
  • Dow Jones Newswires
  • Matthew Whittaker, Dow Jones Newswires