Gold Seen Climbing as Yellen Sets Scene for Negative Rates
Liquid gold flows from a furnace into a casting mold to create a 28 kilogram gold bar in the foundry at the South Deep gold mine, operated by Gold Fields Ltd., in Westonaria, South Africa (Photographer: Waldo Swiegers/Bloomberg)

Gold Seen Climbing as Yellen Sets Scene for Negative Rates

(Bloomberg) -- Gold will rise after the Federal Reserve pledged to stick to its gradual pace of tightening as negative real interest rates deepen and weigh on the dollar, according to Wayne Gordon, executive director for commodities and forex at UBS Group AG’s wealth management unit.

The Fed raised rates by a quarter percentage-point Wednesday, and policy makers penciled in two more quarter-point increases this year and three in 2018, unchanged from projections in December. Chair Janet Yellen said the central bank was willing to tolerate inflation temporarily overshooting its 2 percent goal and intended to keep its policy accommodative for “some time.”

Gold Seen Climbing as Yellen Sets Scene for Negative Rates

UBS’ Gordon Sees Better Gold Prices After Fed Hike

Source: Bloomberg

“Last night was really setting the scene for the next three-to-six months,” Gordon said in a Bloomberg TV interview. “Yellen was very, very clear” that although she sees risks to the economy as balanced and sounded more optimistic, she’s going to stick to three rate hikes this year and three next year, he said. “That means real interest rates go deeper into negative territory in the U.S., that means a weaker U.S. dollar and it means a better gold price.”

Gold Seen Climbing as Yellen Sets Scene for Negative Rates

Gold is up 7 percent this year as investors bought haven assets amid political risks such as Donald Trump’s presidency, elections in Europe and the Brexit process. Precious metals are top of Morgan Stanley’s commodity picks. But Societe Generale SA recommends selling on rallies as it sees gold declining amid further tightening by the Fed and limited impact from political events.

Spot bullion rose 0.7 percent to $1,227.87 an ounce by 12:15 p.m. in London on Thursday after jumping 1.7 percent a day earlier, the most in six months. UBS sees gold at $1,300 this year, while Societe Generale has forecast an average of $1,125 in the fourth quarter.

Policy makers forecast inflation will reach 1.9 percent in the fourth quarter this year, and 2 percent in both 2018 and 2019, according to quarterly median estimates released with the Federal Open Market Committee statement. The Fed’s preferred measure of inflation rose 1.9 percent in the 12 months through January, just shy of its target.

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