February 25, 2015
Gold Advances After Yellen Signals Imminent Rate Rise Unlikely
(Bloomberg) -- Gold rebounded from the lowest level in seven weeks as investors weighed the outlook for U.S. interest rates after Federal Reserve Chair Janet Yellen downplayed the possibility of an immediate increase.
Bullion for immediate delivery rose as much as 0.8 percent to $1,210.37 an ounce and was at $1,209.83 at 11 a.m. in Singapore, according to Bloomberg generic pricing. Gold dropped to $1,190.52 on Tuesday, the lowest price since Jan. 5.
Yellen signaled that a change in the Fed’s guidance on interest rates won’t lock the central bank into a timetable for tightening and no rate rise is imminent, according to testimony before the Senate Banking Committee on Tuesday. While the labor market is improving, inflation and wage growth remain too low, she said. Yellen is scheduled to appear before the House Financial Services Committee on Wednesday and consumer price index data will be released on Thursday.
“She’s given the way forward for interest rate increases and she’s going to be monitoring very closely the consumer price index and inflation data,” said Jonathan Barratt, chief investment officer at Ayers Alliance Securities in Sydney. “Gold should find support at these levels.”
Minutes of the Fed’s January meeting reflected an intense debate over the causes and consequences of an inflation rate that has lingered below the Fed’s 2 percent target for 32 months. The CPI dropped 0.6 percent in January, according to the median economist estimate a Bloomberg survey.
Higher rates curb gold’s appeal because the metal generally gives returns only through price gains, and bullion fell in 2013 and 2014 on prospects for an increase in the world’s largest economy. The Fed hasn’t boosted borrowing costs since 2006.
Yellen repeated that the Fed’s pledge to be patient on raising rates means an increase is unlikely for “at least the next couple” of meetings. Still, a modification of that stance would be a signal that the so-called liftoff in rates “could be warranted at any meeting,” she said.
China returned from a week-long holiday on Wednesday. The international price is little changed from the close of $1,209.89 on Feb. 17, the day before the break.
Gold for April delivery rose 1 percent to $1,209.50 an ounce on the Comex in New York, rebounding from three days of losses. Silver for immediate delivery climbed 2.3 percent to $16.6756 an ounce. Platinum added 1.1 percent to $1,177.25 an ounce, while palladium advanced 0.9 percent to $802 an ounce.