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Gold Climbs Above $5,400 as Traders Eye Dovish Fed Policy Shift - BLOOMBERG
(Bloomberg) -- Gold surged to a record high above $5,400 an ounce, extending a breakneck rally fueled by expectations of monetary easing and a flight from sovereign bonds and currencies.
Bullion rose as much as 4.6% as traders bet the new monetary chief at the Federal Reserve may lean toward more easing later in the year. This is despite the fact that Fed officials left interest rates unchanged and they signaled a more cautious approach to potential future adjustments at the conclusion of their meeting Wednesday.
“People are looking beyond Powell and thinking the next chair may be significantly more dovish,” said Bart Melek, global head of commodity strategy at TD Securities. “The choice of Fed chair will be a critical determinant how gold performs this year.”
BlackRock’s Rick Rieder has recently emerged as a top contender for the Fed chair job. As a Wall Street veteran, Rieder is seen bringing a market-centric approach to the Fed. In September, he advocated for a more aggressive half-point rate cut than the 25-basis-point increments favored by the Fed, while he’s also argued against the central bank’s forward guidance on future rate moves, known as the dots plot. A lower rate environment benefits precious metals, which don’t pay interest.
Bond Traders Target Dovish Fed Pick as Rick Rieder Favored
Heightened geopolitical risks and investor flight from currencies and Treasuries, as well as weakness in the dollar, have sparked a wave of investment demand in precious metals. Gold has gained about 25% already this year, smashing through $5,000 an ounce this week. Over the same period, silver surged 63%.
A massive selloff in the Japanese bond market is the latest example of concerns over heavy fiscal spending, while speculation the US may intervene to support the yen has weighed on the dollar, making precious metals cheaper for most buyers.
Expectations of a more dovish and less independent Fed, as well as geopolitical risks, “are likely driving more rapid allocations to gold, led by retail investors,” Suki Cooper, global head of commodities research at Standard Chartered Plc, said in a note. “Barring short-term corrections, we continue to see further upside risk.”
Gold rose 4.6% to close at $5,417.21 an ounce at 5 p.m. in New York. Silver rose 4.1% to $116.70. Platinum and palladium advanced. The Bloomberg Dollar Spot Index was up 0.4%.
