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BU: GOLD PRICE IN DANGER OF HITTING FRESH 5-YR LOWS FOLLOWING FOMC
 
The gold price is in danger of dropping to fresh five-year lows once again following Wednesday’s FOMC statement, despite no clear indications of any increases to US interest rates in the near-term.

Spot gold was last at $1,085.80/1,086.50 per ounce on Thursday, down $10.80 on the previous session, having earlier hit $1,082.50 which is not far from five-year lows at $1,077.

The return of downside pressure comes following the conclusion of the Federal Reserve’s last meeting before its summer break last night – which has drawn a mixture of reviews.

“Gold has fallen significantly to $1,085 per troy ounce this morning, despite the fact that the Fed statement contained only marginal changes and gave no clear signal that interest rate hikes would be forthcoming in September,” broker Commerzbank said.

The Federal Open Market Committee (FOMC) concluded its two day meeting by highlighting improvement in the labour market, but noted the lack of inflation.

“The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its two percent objective over the medium-term,” the FOMC minutes said.

Initially, the market interpreted the release as more dovish than expected, pushing gold up above $1,100 briefly as investors saw a December increase as more likely.

However, further reassessments of the statement eventually resulted in some stronger bids on the dollar – which has thus recovered from 1.1079 following the release to its current level of 1.0978 against the euro.

The most notable change was the FOMC’s characterisation of recent US labour data as “solid,” – inflation and labour market data are two important factors that will guide the Fed’s hand in the process of monetary policy normalisation.

Any move towards higher interest rates raises the opportunity cost of holding gold and pushes investors into more yield-bearing assets such as bonds.

As a result, various banks including Deutsche have reinforced their views that the first increase to US interest rates for nine years will take place in September – thus placing pressure on precious metals this morning.

“We have not changed our outlook with respect to gold and suspect that prices will resume their decline over the balance of the week and into next, if this “revised” interpretation of the Fed policy statement stands,” INTL FCStone’s Ed Meir said.

Other metals are acting similarly; silver was last down 13 cents at $14.65/14.70, while palladium was unchanged at $619/624 as was platinum at $979/989.

The economic agenda is busy today. The German unemployment for June came in worse than expected, rising 9,000, instead of falling 5,000. The Spanish flash CPI at 0.0 percent and GDP for July at one percent also undershot.

Still to come will be the German preliminary CPI for July, US goods trade balance for June, US unemployment claims for the week ending July 24, and the second quarter US GDP report – which may reinforce any interpretations of last night’s Fed statement.

In equities, Asian stocks fell this morning – the Shanghai Composite closing down 2.2 percent and the Hang Seng by 0.49 percent, though the Nikkei closed up 1.1 percent, propped up by the weaker yen.

European markets are mixed this morning, with marginal gains in the German and French indexes.

Source