Singapore - 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 pencilled 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.”
“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 US dollar and it means a
better gold price.”
Gold is up almost 7 percent this year as investors favoured
haven assets amid political risks such as the Donald Trump presidency,
elections in Europe and the Brexit process. Precious metals are top of Morgan
Stanley’s commodity picks. But Societe Generale recommends selling on rallies
as it sees gold declining amid further tightening by the Fed and limited impact
from political events.
Spot bullion added 0.4 percent to $1 224.40 an ounce by
9:30 a.m. London time on Thursday after jumping 1.7 percent a day earlier, the
most in six months, on the Fed rate outlook. UBS sees gold at $1 300 this year,
while SocGen 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.