Meeting of U.S. Federal Reserve Was Unlikely to Push Interest Rate Hike
The U.S. Federal Reserve declined to raise its interest rates following the close of its two-day meeting, although analysts expect that June will see an interest rate hike, while gold prices fell as the U.S. dollar held fast.
The Fed was not expected to raise interest rates at this meeting, which is usually a boon for gold. Gold fell, however, to $1,247 an ounce, due the U.S. dollar remaining strong.
The dollar index, which measures the Greenback against a basket of global peers, rose 0.2%. The U.S. two-year government bond yield also jumped up two basis points, at 1.28%. Both increases served to hurt gold prices, as investors usually turn to bullion as a hedge against a weakening American dollar or bond assets. Bond assets are generally preferable in strong economic times, as they yield interest, while gold does not.
The economy had been a mixed bag, leading up to the Fed meeting. While the rate of economic growth leaves much to be desired, at 0.7% annual pace in the first quarter, unemployment hit a 10-year low, at 4.5%.
The Fed usually raises interest rates in strong economic times, which then has the knock-on effect of raising the demand for the U.S. dollar and jumping up its value. This combination often leads to a devaluing of gold, as the risk management asset is forgone in favor of interest-yielding assets.
Gold prices have also dropped, due to a relative cooling in political crises across the world compared to March and April. U.S. military movement in the Asia-Pacific region, as well as a military strike on a Syrian government target, had created a feeling of instability among analysts, but the tensions have since decreased or, at least, the focus on the tensions has abated.