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Gold futures rose early Friday, a day after the Federal Reserve announced a policy shift that would allow employment and inflation to run hotter than in the past, implying that the central bank may keep benchmark interest rates lower for longer.
The Fed is shifting to a policy of average inflation targeting which would effectively see policy makers end the practice of preemptively hiking interest rates to stave off inflation. Instead, the Fed would allow inflation to run above its 2% target to make up for periods when inflation runs below it — signaling that a long period of ultralow interest rates lies ahead.
After volatile trading on Thursday, which briefly sent bullion surging higher immediately after the announcement by the Fed, gold ended sharply lower, with investors attributing that decline to investors profit-taking and attempting to interpret the implications of the historic move by the Fed, according to some metals enthusiasts.
“Gold prices were sent on a roller-coaster ride last night as investors tried to decipher what the Fed’s shifting stance on inflation could mean for the yellow metal, with prices soaring above $1970 before careening below $1910 in the immediate aftermath,” wrote Han Tan, market analyst at FXTM, in a research note.
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Moreover, gold also drew some support on Friday from a weakening U.S. dollar that fell on the back of strength in the Japanese yen on the back of news that Prime Minister Shinzo Abe plans to quit due to his worsening health.
The benchmark Nikkei 225 NIK, -1.40% closed down 1.4% and the yen USDJPY, -0.91% strengthened to change hands at 105.25, surging more than 1.2%. A broader measure of the dollar against a half-dozen currencies, including the yen, was down 0.8%, as gauged by the ICE Dollar Index DXY, -0.60%.
A weaker dollar can make precious metals that are priced in the currency more appealing on a relative basis.
December gold GCZ20, +1.50% GC00, +1.50% traded $35.30, or 1.8%, at $1,967.90 an ounce, after falling 1% on Thursday.
September silver SIU20, +1.79%, meanwhile, added 69 cents, or 2.5%, to reach $$27.71, following its 1.5% decline in the previous session. The most-active December contract SIZ20, +1.75% was up 67 cents, or 2.5%, at $27.870 an ounce.
For the week, gold is on track for a weekly rise of more than 1%, while silver was set for a 3.7% weekly advance, based on the most-active contract settlement last Friday.
Gold and silver prices have been mostly marching higher as investors purchase precious metals as a perceived safe play against the uncertainty created by the COVID-19 pandemic. Responses to the deadly disease by governments and central banks have also bolstered appetite for gold, which is seen as a hedge against money printing and an asset the propers in a low-rate environment.
In U.S. economic reports, data on personal-consumption expenditure rose 0.3% in July, while core inflation for the month rose 0.3%, and a reading of consumer spending rose 1.9% last month, while personal incomes climbed 0.4% in July.
