Following the decision by the US Fed to leave interest rate unchanged on Wednesday, futures for gold sharply went up. This morning spot price of gold has broken psychologically important level of 1300.00 USD per ounce. Comments, following after the meeting, showed that the US Fed sticks to the soft policy. Executives of the US Fed downgraded forecast of the increase in the short-term interest rates for the next few years.
According to the median forecast made by 17 Fed’s executives, by the end of 2016, the rate on Federal funds will be at the level of 0.875%, by the end of 2017 it will be at the level of 1.625%, and by the end of 2018 -t 2.375%. 3%. Earlier, it was expected that the rate will grow up to 3%. In the long-term US Fed believe that the rate will grow to 3% but not to 3.25% as was expected in March.
Although Mrs. Janet Yellen said that all meetings of the regulator are “lively” showing possibility of the rate hike, market participants believe that earliest month when the rate can be raised is September.
Low interest rates are favourable for gold, as investments in this precious metal do not bring dividends. When the interest rates are high, it is difficult to compete with the assets generating the income, such as U.S. Treasury bonds.
Political and economic uncertainty in the world, slow economic growth in China, Eurozone and other regions, the increased turbulence in the financial markets, uncertainty about the future of the UK in the EU and the Eurozone, as well as the inaction of the Fed associated with the interest rate increase have boosted demand for gold.
The rise in price of gold is likely to continue. Some market participants expect that the price of gold may reach $1.400 per ounce by the end of the year.