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Gold bounces on dovish Fed

  • The FOMC statement seen as dovish, investors dump USD 
  • Gold is bouncing from the 1304 level and is past the 1,310 level

Gold is trading at around 1,312 a troy ounce up 0.66% on Wednesday as the FOMC surprised the market with a dovish statement.

The Fed leaves rates unchanged as it was widely expected and a hike in June is still on the cards, however, the Fed may not be eager to keep inflation depressed.

On inflation the Fed says:

“On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

The Fed sees things as “symmetric”. Analysts say that it implies that the Fed will allow inflation to run a bit high before moving hiking rates.

As a reminder, the US macroeconomic data has been rather constructive of late. Core Consumer Price Index (CPI) rose from 1.8% YoY to 2.1% in April while Core Personal Consumption Expenditure (PCE), the Fed's favorite gauge of inflation, increased from 1.6% to 1.9% in April and wage growth stood at 2.7% above 2.5% seen earlier.

The next event of significance that can move gold is the US Non-Farm Payroll scheduled on Friday at 12:30 GMT. 

 

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