Fed Believes Slowdown in U.S. Economy Is “Transitory”
Gold prices took a big hit on Thursday as the U.S. Federal Reserve concluded its two-day meeting with a positive outlook on the U.S. economy, despite recent underwhelming data concerning American gross domestic product (GDP) growth. Gold tumbled to $1,228 an ounce on the back of the Fed’s announcement.
Fed Funds Futures (FFF) now put the likelihood of an interest rate hike in June at 97%, up from 67% prior to the conclusion of the meeting. (Source: “Gold Prices Plunge as Upbeat Fed Boosts June Rate Hike Bets,” DailyFX, May 4, 2017.)
The U.S. dollar and government bonds were both bolstered by the Fed’s release. The precious metal suffered as a result, as the belief in the U.S. economy was reassured and, therefore, investors were less likely to flee to the safety of gold as a risk-management asset.
The next Fed meeting will take place in June, and it is expected to carry with it an interest rate increase, further impacting the price of gold.
Bullion was also hurt by the decreasing political uncertainty across the globe, but particularly in France.
As the French federal election draws to a close this weekend, polls and political analysts largely expect Emmanuel Macron to emerge victorious as the country’s new leader. His opponent, Marine Le Pen of the far-right National Front party, has been advocating for a review of the single European market, the euro as single currency, and the European Union (EU) in general. A Le Pen win would likely send investors to seek gold as a hedge against the possible upheaval in Europe.
Late April and early May also did not lead to any major standoffs in already-simmering international conflicts, including between the U.S. and Syria, and between the U.S. and North Korea.
The U.S. had exercised its military power against both nations, with threats being issued to North Korea and direct bombing employed against a Syrian government airfield.