FOMC Minutes Released on Wednesday Hints at Dovish Monetary Policy

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The spot gold rate increased by 0.42 percent to trade at $1,290.26 for an ounce, while the US gold futures increased by $6.10 to $1292.00 for an ounce. The dollar index slipped by 0.6 percent, which made it easy for investors to buy gold by using other currencies.

Supporting the rise in the value of the bullion are several factors, such as a prolonged US government shutdown, weakening value of the dollar, increased interest rates by the US federal reserve, and ongoing trade wars between the US and China.

Gold prices are fairly high despite the dovish sentiments displayed by members of the Federal Reserve at their monetary policy meeting held last month. The central bank committee is unsure about the timing of future interest rates.

According to Federal Open Market Committee (FOMC) minutes released on Wednesday from their Dec 18-19 meeting, the Federal Reserve would prefer to remain ‘patient’ for future hikes. Last year, the Federal Reserve increased funds by 0.25 percent to 2.5 percent. But fearing global economic slowdowns, the FOMC promised to reduce the number of projected interest rate hikes from three to two percent in 2019.

The projected interest rates will now rise to 2.9 percent towards the end of 2019 and 3.1 percent towards the end of 2020. A few members of the meeting believed that it is better to keep inflation reading unchanged to prevent the ensuing volatility in the financial market. By the end of the meeting, each member voted in favor of increasing interest rates.

“With an increase in the target range at this meeting, the federal funds rate would be at or close to the lower end of the range of estimates of the longer run neutral interest rate, and participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier,” read the minutes.

Last week’s statement at the American Economic Association’s annual meeting by the Federal Chairman Jerome Powell seemed to be in agreement with this sentiment. He said that there is no ‘preset path for policy’.

Experts believe that there is a clear tension between the financial market and economic data. This is giving rise to increased market volatility and hurting the dollar index, which is relative to the value of a basket of currencies.

Meanwhile, Donald Trump continues to lengthen the US government’s shutdown, which is throwing a lot of uncertainty in the commodities market. As the chaos unfolds, paranoid investors scramble to perform damage control by buying more gold commodities.

Donald Trump says he will not budge from his position unless the Democrats allow him to allocate requisite funds to the tune of several billions of dollars. The funds will be used to erect a 1000 mile border along the Mexican border due to concerns of illegal immigration into the United States. During his 2016 presidential campaign, Donald Trump promised his supporters that he will build a wall.