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Gold price retreats from 12-week high on US Fed statement

January 29
3:28 AM 2016

The yellow metal price eased from the 12-week high after the US Federal Reserve acknowledged a challenging global economy. The gold price was soaring on prevailing uncertainty in China and European nations. Gold was making a huge comeback and this propelled investors to book profits. 

US Federal Reserve, however, indicated that challenging economic conditions in the global markets may not deter it from raising interest rates in 2016. The less dovish tone of the US Federal has impacted gold price. The marginal recovery in Asian stocks also eroded safe haven appeal of gold as investors turned to park their investment in stocks available at lower prices. 

Spot gold fell 0.5 percent to $1,119.69 an ounce. The gold rose to $1,127.80 on 27 January, highest since 3 November 2015. The US gold for February delivery added 0.4 percent to $1,120 an ounce. Taking advantage of the latest surge, investors preferred to book profits in gold, as reported by Emirates 24-7

The US Federal Reserve said that it would monitor the global economic situation before deciding on interest rate. Analysts feel that it's too early to say whether US Fed increases interest rate in March or not. The market bets on rate hike in March are as low as 25 percent only. 

The US Federal Reserve is considering global economic headwinds and domestic data. The statement from the US Fed pulled the gold prices lower. The US economy is on moderate growth path and encouraging labor market may propel US Fed to go for gradual rate hike, according to The Week

David Kelly, the Chief Strategist at JPMorgan's asset management arm, said that the US Fed was carefully toed the line between dovish and hawkish to send signals that rate hike would be in gradual manner. Generally, rate hike is also dependent on data pertaining to several sections of US economy. 

Gold price rose to $1,120 an ounce on 26 January indicating a three-month high. The safe haven rally in the yellow metal was triggered as equities gyrated. The concerns about Chinese economy, lower oil prices and slump in commodities helped the surge in gold price. 

It's expected that gold will return to its traditional role in international monetary system. Hugo Salinas Price, Mexican business magnate, investor, and philanthropist and the president of the Mexican Civic Association for Silver, said that gold would help balance international trade and bring discipline in government budgets, as reported by GoldCore.

Daniel Ang, investment analyst at Phillip Futures in Singapore, said: "Investors were also taking profits on gold after its recent run-up. I think the safe-haven appeal of gold is tapering off a bit and investors are looking at other havens such as the Japanese yen."

Traders are of the view that the US Fed may raise rates in a slower manner boding well for gold. Before the Fed's first meeting this year, expectations for rate hike in March receded in the wake of global economic headwinds.

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