Yesterday, the Fed released its most recent monetary policy statement. How can it affect the gold market?

In line with expectations, the Fed kept the federal funds rate target unchanged at between 1.00 and 1.25 percent:

“In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1 to 1-1/4 percent.”

The statement was little changed, but the U.S. central bank noted that economic activity has been rising at a solid rate despite hurricane-related disruptions. The Fed also pointed out that although the hurricanes boosted the overall inflation in September, the core inflation remained soft.

“Gasoline prices rose in the aftermath of the hurricanes, boosting overall inflation in September; however, inflation for items other than food and energy remained soft. On a 12-month basis, both inflation measures have declined this year and are running below 2 percent.”

Although the Fed acknowledged soft inflation, the statement is rather neutral, as the U.S. central bank simultaneously upgraded the assessment about the economic growth from “moderately” to “at a solid rate”.

As one can see in the chart below, the price of gold initially rose after the release of the monetary statement, just to decline later and ultimately closed a day higher.

Chart 1: Gold prices over the last three days.

The truth is that the meeting was a non-event, as nothing surprised investors (actually, little was expected). The Fed’s stance remained unchanged. The U.S. central bank is likely to hike interest rates in December. Thus, the gold prices may stay under pressure until the next FOMC meeting. However, with the market odds of December hike at roughly 100 percent, the move is fully priced in and these expectations should not weigh on gold prices.

Now, all investors’ focus is on the prospects of the tax reform and the next Fed chair: president Trump is likely to announce a nomination today (Powell is highly expected to get this job, so his choice – in opposition to other choices – should not shake the markets). Friday’s payrolls will also be closely watched, as there was a drop in September. Hence, there might be some volatility in the gold market today and tomorrow.