Gold prices retreated from a three-week high after the Federal Reserve said a recent U.S. economic slowdown happened because of reasons that will fade.
Cooling growth in part reflected “transitory factors,” Fed policy makers said in a statement Wednesday in Washington. With officials signaling that U.S. expansion will be more resilient than some economists had suggested, there’s less reason for investors to hold gold as a haven, said Lance Roberts, the chief strategist at STA Wealth Management.
“Gold functions historically as a fear trade,” Roberts said in a telephone interview from Houston. “As long as the Fed keeps giving that message, then there’s no reason to be in gold.”
The Fed’s more optimistic view on the economy also damped speculation that policy makers will wait longer before raising interest rates. Higher rates typically drive investors to favor assets with better yield prospects, such as equities, especially as U.S. inflation stays low. Gold fell 7.8 percent in the previous two months on concern that the central bank was getting ready to raise borrowing costs for the first time since 2006.
Gold for immediate delivery dropped 0.4 percent to $1,207 an ounce at 2:42 p.m. in New York, heading for the first loss this week. Prices on Tuesday reached $1,215.16, the highest since April 7.
The metal slumped 29 percent in the previous two years as the dollar and equities surged, while inflation remained low.