GOLD INVESTORS face a changed US monetary policy backdrop after the Federal Reserve reduced its benchmark interest-rate target by half a percentage point on Wednesday.
The decision lowered the federal funds target range to 4.75–5.00%.
The central bank said it had gained greater confidence that inflation was moving sustainably towards its 2% objective. It also judged the risks to its employment and inflation goals to be roughly balanced.
Economic activity continued to expand at a solid pace, although employment gains had slowed and unemployment had increased from earlier levels.
The decision was not unanimous. Michelle Bowman preferred a smaller reduction of one-quarter of a percentage point.
The Fed confirmed that it would continue reducing its securities holdings and assess incoming data before making further rate adjustments.
For gold, lower interest rates can reduce the opportunity cost of holding bullion, which does not pay interest. However, prices also respond to exchange rates, inflation expectations and investor positioning.
The latest cut changes the policy backdrop without establishing a fixed timetable for further reductions. Future decisions remain dependent on economic conditions and the balance of risks.
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