Gold Bulls Cheer Yellen Caution With More `Easy Money' Predicted

Besides the Fed, What Is Driving Gold?
  • `Easy money will be around a lot longer,' RJO's Streible says
  • FOMC still has `considerable scope' to ease policy: Yellen

It took two words from Federal Reserve Chair Janet Yellen to reignite a gold rally.

Gold futures advanced as much as 1.6 percent, the most in seven sessions, after Yellen said it’s appropriate for U.S. central bankers to “proceed cautiously” in raising interest rates because the global economy presents heightened risks. She spoke Tuesday at the Economic Club of New York.

Before Tuesday, gold’s rally was sputtering, with prices gaining only six times this month, amid signs the U.S. economy may be resilient enough to withstand another interest rate increase even as global growth weakens. Higher rates reduce the appeal of gold as an alternative investment because it doesn’t offer yields or dividends. After Yellen’s speech, the odds of a rate increase by December fell to 64 percent, from 73 percent a day earlier, according to Fed funds futures data compiled by Bloomberg.

“I’m surprised that she used that term caution,” Phil Streible, a senior market strategist at RJO Futures in Chicago, said by telephone. “It seems very negative for the U.S. dollar and the economy and positive for gold. Easy money will be around for a lot longer.”

Gold futures rose 1.3 percent to settle at $1,237.50 an ounce at 1:44 p.m. on the Comex in New York, taking this year’s gains to 17 percent. That helps the precious metal’s maintain its place as the best performer among major assets in 2016, beating Treasuries, the dollar, equities and high-yield and investment-grade corporate bonds.

Even with the rally faltering in the past few days, investors in exchange traded funds didn’t back out. Holdings in gold-backed ETFs expanded for a ninth session through March 28 to reach the highest since December 2013.

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