Gold prices reacted, increasing, due to the Federal Reserve‘s decision not to raise interest rates until 2022. This means the interest rate will remain at its current state, around zero. Low prices are usually favorable for gold because they reduce the returns on other financial assets with which it competes in favor of investors, such as treasury bonds.
After the virtual meeting held by the members of the Federal Reserve Council, Jerome Powell announced the plans the organization laid out in terms of the financial policy that will follow in the coming months.
The most important decision, without a doubt, has been to keep interest rates in their current state, close to zero. At least until 2022. The gold market has immediately reacted to it with increases.
Besides, Powell has confirmed that the Fed will continue with its current plan to purchase Treasuries and mortgage-backed securities. Since this plan launched in mid-March, the Fed has invested more than two billion dollars in purchasing bonds and securities.
According to Powell, during this week, they will invest a minimum of 20 million dollars in purchasing Treasury bonds. Also, the bank will spend around 22.5 million in mortgage-linked securities, as a measure to stimulate the American economy.
The Federal Reserve will not hesitate to use all the tools available to support the growth of the US economy. The bank is trying to maintain its objectives in terms of employment and price stability. It is thus essential to control inflation at around 2%.
Gold gained $40 from the previous session
The price of gold has quickly reacted to statements by the president of the US Federal Reserve. The metal closed the session on Wednesday, June 10, at the London Bullion Market Association (LBMA) at $1,722.05 an ounce, almost $40 above the closing price of last Friday.
This morning the spot price was already around $1,730 an ounce.
Typically, interest rate slumps are often very positive for the gold market. They indicate that yields on treasury bills are reduced, which are one of the assets gold competes against in favor of investors.
The dollar has increased on the decisions of Fed
This Wednesday, the dollar registered an average trading price of $3,675, which represented a rise of $31.98 against the Representative Market Rate, which is currently located at $3,643.02.
The currency opened the day at $3,650, and it was traded in 1,629 transactions of the gross value of $961 million.
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