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The gold market is holding solid gains even as the minutes of the Federal Reserve's September monetary policy meeting show that the central bank is committed to maintaining a "higher for longer" monetary policy stance.
Although the Federal Reserve is nearing the end of its tightening cycle, the minutes showed that the committee continues to support elevated interest rates until it is confident that inflation is falling back to the 2% target.
"All participants agreed that policy should remain restrictive for some time until the Committee is confident that inflation is moving down sustainably toward its objective," the minutes said. "Several participants commented that, with the policy rate likely at or near its peak, the focus of monetary policy decisions and communications should shift from how high to raise the policy rate to how long to hold the policy rate at restrictive levels."
The gold market is not seeing much reaction to the latest minutes. December gold futures last traded at $1,885.50 an ounce, up 0.54% on the day.
The gold market continues to be well supported due to renewed safe-haven demand as investors remained focused on the growing chaos in the Middle East and the new war between Israel and Hamas.
Although the Federal Reserve is expected to maintain restrictive monetary policies for the foreseeable future, the minutes also show the committee recognizes the difficult path that lies ahead.
"Many participants commented that even though economic activity had been resilient and the labor market had remained strong, there continued to be downside risks to economic activity and upside risks to the unemployment rate," the minutes said. "Participants generally noted that it was important to balance the risk of overtightening against the risk of insufficient tightening."
Despite the Federal Reserve's relatively hawkish stance, markets expect that the Federal Reserve will leave interest rates unchanged next month. According to the CME FedWatch Tool, markets see a less than 10% chance of a 25-basis point hike.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, said that he expects that the Fed's tightening cycle has ended.
"With several officials this week suggesting that higher yields could reduce the need for further rate hikes, we think it is increasingly likely that the Fed's next move will be a cut. We expect that to come in the first half of next year, with rapidly falling inflation and weak economic growth convincing officials to cut rates by 200bp in total by end-2024," he said in a note following the release of the minutes.
By
Neils Christensen
For Kitco News
