Gold prices rose on Wednesday after Federal Reserve President Jerome Powell warned that the central bank may have to do more to support the U.S. economy, even though he downplayed the chance of cutting official interest rates below zero.
By 11:15 AM ET (1515 GMT), gold futures for delivery on the Comex exchange were up 0.9% at $1,722.35 an ounce, while spot gold was up 0.8% at $1,715.58. Treasury bond yields were lower across the curve
Silver futures were up by less, thanks to their greater cyclical exposure, rising 0.2% to $15.75 an ounce, having earlier failed for the fourth time in a month to break through the $16 level. Platinum futures were down 0.9% at $770.80.
Powell had said in a teleconference Q&A with the Peterson Institute that “for now” the Fed isn’t looking at using negative interest rates as a policy tool because the evidence for their effectiveness is “very mixed”. experiments with them in Japan and the euro zone have not proved that they are a panacea for slow growth.
However, gold and Treasury bond prices were both supported by Powell’s comments that the economic recovery may take “longer than we would like” and by his hints of further monetary policy accommodation in the future.
Before Powell’s comments, analysts at Citigroup (NYSE:C) had warned that while fundamentals for gold are still positive, they expect further gains to be “non-linear”, even though they still expect it to breach $2,000 some time next year.
“Low(er) for long(er) interest rates and global currency debasement are the primary drivers,” they argued. However, they cautioned that “We would ‘buy the dip’ but note that gold prices are not immune to occasional sell-offs,” Citi’s analysts wrote in a note to clients, warning that the rally was already a year and a half old.