Gold surges above $2200 for first time in history

Gold prices rallied on Thursday for the second straight session above $2200 an ounce for the first time ever as the dollar and US treasury yields lost ground, with the Federal Reserve taking a more bearish stance than expected in its policy statement. 

Despite the upside inflation results, the Fed maintained its forecasts for three interest rate cuts this year, bolstering the case for a June rate cut. 

Gold Prices

Gold prices rose 1.7% to $2222 an ounce, a record high, after rallying 1.3% yesterday, the biggest profit since March 4 following the Fed’s policy meeting.

The Dollar 

The dollar index fell 0.2% on Thursday on track for the second straight loss, plumbing a week trough at 103.17 against a basket of major rivals.

US 10-year treasury yields dropped by 0.5% and extended losses for the third straight session, hurting investments on the dollar. 

The developments came as traders changed their bets on the timing of the first Federal Reserve interest rate cut, likely in June.  

 The Fed 

As expected, the Federal Reserve maintained interest rates unchanged at 5.5%, a 2002 high, for the fifth meeting in a row. 

The Fed said that recent indices showed that US economic performance is still strong, with high employment gains and weakening inflation, although it remains high. 

The Fed said that any changes for interest rates will require careful examination of inflation data and upcoming risks. 

It asserted it won’t cut interest rates until further confidence is gained about reaching the 2% inflation target.

Economic Outlook

The Fed’s quarterly economic outlook report included important revisions:

For growth, the Fed changed its outlook for 2024 growth from 1.4% to 2.1%, and for 2025 growth from 2.0% to 1.8%, and for 2026 growth from 2.0% to 1.8%. 

For main inflation, the Fed maintained its 2024 inflation forecast at 2.4%, and the 2025 forecast at 2.2%, and the 2026 forecast at 2.0%.

As for core inflation, the Fed changed its 2024 forecast from 2.4% to 2.6%, and the 2025 forecast is still at 2.2%, and the 2026 forecast is still at 2.0%. 

Finally, the Fed maintained its interest rate targets this year at 4.75%, and at 4.0% next year. 

Powell

Fed Chair Jerome Powell said the FOMC members are committed to bringing inflation to the 2% target, noting that inflation while slowing is still above the target. 

He added that US inflation remains high and the Fed is paying attention to it, and that higher inflation than expected in February didn’t change the Fed’s outlook. 

He added that if the US economy performed as expected, it could be appropriate to start cutting rates this year. 

US Rates

Following the Fed’s meeting, the odds of a 0.25% interest rate cut in June surged to 75%. 

The SPDR 

Gold holdings at the SPDR Gold Trust rose 1.15 tonnes yesterday, the fourth increase in a row, to a total of 838.5 tonnes, the highest since February 14.