Gold Snaps Three-Day Drop as Fed Minutes Show Concern on Outlook

  • Investors have pushed back expectations of more rate increases
  • Bullion is still this year's best-performing commodity

Gold ended a three-day drop to hold near $1,200 an ounce as Federal Reserve minutes showed U.S. policy makers saw risks to the economic outlook have worsened.

Central bank officials debating the outlook for interest rates last month expressed concern that the fall in commodity prices and the rout in financial markets increasingly posed risks to the U.S. economy, according to minutes of its Jan. 26-27 meeting. Manufacturing output rose in January by the most since July, while new-home construction fell to the lowest in three months, U.S. reports showed Wednesday.

Bullion, which has retreated from a one-year high set last week as a rebound in global stocks reduced demand for a haven, is still this year’s best-performing commodity. After the Fed raised rates in December, volatility in financial markets prompted traders to push back expectations for another move this year, increasing the appeal of gold as a store of value. Investors have boosted holdings in exchange-traded products in the opening weeks of 2016 by more than they shrank in all of last year.

“The gold and silver markets really took off in anticipation of more dovish monetary policy moving forward,” Tim Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “The market is going to be looking for confirmation from Fed minutes, to see specifically where the Fed members are on that.”

Bullion for immediate delivery gained 0.5 percent to $1,206.54 an ounce at 2:38 p.m. in New York, according to Bloomberg generic pricing. It declined 3.7 percent in the previous three days, the longest slump in more than a month. Gold futures for April delivery rose 0.3 percent to settle at $1,211.40 on the Comex in New York.

The minutes go into more detail than the FOMC’s statement on policy makers’ concerns about the risks to the U.S. economy. While voting members “generally agreed” they couldn’t assess the balance of risks to the outlook in the statement, officials “observed that if the recent tightening of global financial conditions was sustained, it could be a factor amplifying downside risks,” according to the report.

While prices seem overbought in the short term, there is still potential for more gains, according to DBS Group Holdings Ltd., contradicting the outlook of Goldman Sachs Group Inc., which this week reiterated its forecast that gold will tumble.

  • Holdings in exchange-traded products backed by gold rose to 1,604.1 metric tons as of Tuesday, the highest since May, data compiled by Bloomberg show.
  • Billionaire John Paulson’s hedge-fund firm cut its stake in the world’s biggest gold ETP by 37 percent last quarter, just before the metal’s 14 percent surge this year.
  • Silver futures for March delivery rose on the Comex, while platinum and palladium advanced on the New York Mercantile Exchange.
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