By Administrator_India
Gold headed for a third weekly drop as investors weighed the impact of the Federal Reserve’s new approach to setting U.S. monetary policy, with a more relaxed stance on inflation.
Chair Jerome Powell said that the Fed will seek inflation that averages 2% over time, a step that implies allowing for price gains to overshoot. He also noted that “if excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal,” the central bank wouldn’t hesitate to act.
The Fed’s shift to let inflation and employment run higher may signal that policy makers will keep interest rates low for years to come, lifting the appeal of non-interest-bearing gold.
Since the central bank officially set its inflation target at 2% in 2012, the Fed’s preferred measure of price increases has consistently fallen short of that objective, averaging just 1.4%. That challenge was part of the impetus for the strategy review. Low inflation contributes to low interest rates, which reduces the Fed’s ability to fight off economic downturns — potentially making them deeper and longer.
Bullion swung sharply Thursday as investors parsed the speech delivered virtually for the Fed’s annual policy symposium traditionally held in Jackson Hole, Wyoming. It rallied to an all-time high earlier this month as governments and central banks employed stimulus measures to curb the coronavirus pandemic’s damage on economies.
Spot gold fell 0.1% to $1,927.28 an ounce at 8:20 a.m. in Singapore. On Thursday prices slumped as much as 2.3%.
“While the Fed will likely need to ramp up their asset purchases to support the economy, they didn’t provide any signs that will happen soon,” Moya said. “Gold’s path back to record high territory is still there, it will just take a while longer to get there.”
