Gold futures hit two-week high as Fed minutes suggest US interest rates may stay low

Gold futures advanced to the strongest level in more than two weeks, following the release of the Federal Reserve minutes that played down forecasts by some of the central banks own officials that borrowing costs might rise faster than previously estimated. Assets in the SPDR Gold Trust, the biggest bullion-backed ETF, were unchanged yesterday, after falling to a one-month low on April 8.

On the Comex division of the New York Mercantile Exchange, gold futures for settlement in June surged by 0.85% to trade at $ 1 317.00 an ounce by 06:45 GMT. Prices shifted in a daily range between $1 318.30 an ounce, the strongest since March 24, and $1 311.20 an ounce. The precious metal settled last week 0.6 percent higher, snapping two straight 5-day periods of declines.

Bullion has lost 3.1% last month as the US economy expanded at a faster-than-expected pace and after Federal Reserve Chair Janet Yellen said the central bank’s bond-buying program may be brought to an end this fall, with borrowing costs starting to rise by mid-2015. The Federal Reserve trimmed its monthly bond-buying program by $10 billion at the last three meetings.

However, the precious metal has climbed 9.3 percent this year, rebounding from the worst annual drop since 1981, as a rout in emerging markets and Russia’s annexation of Crimea boosted its safe-haven appeal.

Fed stimulus outlook

The minutes from the March 18-19 Fed policy meeting, at which bond-buying was trimmed for a third time, revealed that some banks policy makers said that projections for an interest-rate increase might be overstated.

“While it is almost certain the Fed will continue to reduce monthly asset purchases, there is much less certainty as to when interest rates will start to increase,” said Wang Xiaoli, chief investment strategist at CITICS Futures Co. in Shenzhen, a unit of China’s biggest listed brokerage, cited by Bloomberg. “That’s giving some support to gold prices.”

The Federal Reserve trimmed its monthly bond-buying program by $10 billion at the last three meetings, leaving bond purchases at $55 billion per month, while maintaining its target for overnight lending between banks in a range of zero to 0.25% for six years now.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, were unchanged yesterday, after falling to 806.48 tons on April 8, the weakest level since March 7. The fund has not received any fresh inflows in almost four weeks. It lost 41% of its assets in 2013 that wiped almost $42 billion in value. A total of 553 tons has been withdrawn last year.