Gold and silver futures are spiking following the conclusion of the Federal Reserve’s two-day policy meeting on Wednesday. The precious metals popped on the US central bank leaving interest rates unchanged near zero and encouraging a trifecta of stimulus from the Fed, Congress, and the White House. With inflation forces lingering in the background, could the yellow and white metal retest fresh highs heading into 2021?
February gold futures tacked on $12.60, or 0.68%, to $1,867.90 per ounce at 19:17 GMT on Wednesday on the COMEX division of the New York Mercantile Exchange. The yellow metal has experienced a selloff over the last six weeks due to growing optimism in the broader US economy, but it is still up 23% year-to-date.
Silver, the sister commodity to gold, is exploding in the middle of the trading week. March silver futures advanced $0.711, or 2.89%, to $25.355 an ounce. Silver prices have been volatile in recent weeks, but they remain up 42% in the home stretch of 2020.
So, what is driving the boom in metal commodities midweek?
The Federal Open Market Committee (FOMC) finished its final policy meeting of 2020, leaving interest rates unchanged at 0.25% and vowing to keep buying government and corporate bonds as long as necessary.
The FOMC said in its statement:
The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.
The Federal Reserve will continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month until substantial further progress has been made toward the Committee’s maximum employment and price stability goals.
What is supporting the metals market, however, is Fed Chair Jerome Powell’s insistence that fiscal and monetary stimulus efforts are necessary to help struggling consumers and businesses. Since the Eccles Building does not anticipate an explosive economic recovery until after June, policymakers could ramp up spending to support the world’s largest economy.
Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year.
The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.
While Powell noted overall optimism regarding the COVID-19 vaccines, he pointed out that it would take time before consumers are confident to “reengage” in normal activities.
The Fed also released some economic projections for the next few years. It expects a 4.2% rebound in the US gross domestic product (GDP) next year, up from the September projection of 4% annualized growth. The central bank also believes the unemployment will crater back to 5% sometime next year.
The greenback erased its midday gains on Wednesday. The US Dollar Index, which measures the buck against a basket of currencies, slipped 0.09% to 90.40, from an opening of 90.49. A lower buck is good for dollar-pegged commodities because it makes it cheaper for foreign investors to purchase.
In other metal markets, January copper futures added $0.0125, or 0.35%, to $3.557 per pound. January platinum futures shed $1.50, or 0.14%, to $1,037.80 per ounce. January palladium futures surged $15.00, or 0.65%, to $2,339.00 an ounce.