Treasuries Close Sharply Higher Following Fed Announcement

Posted March 19, 2017

This, as the USA dollar hit a five-week low following the Federal Reserve's cautious message on interest rates, thus making bullion cheaper for holders of non-U.S. currencies. "I would expect gold to trade in a wide band of $1,190 - $1,230 between the French elections and US Federal Reserve meeting in May", said Jiang Shu, chief analyst at Shandong Gold Group. The Dow Jones industrial average rose 9 points, or less than 0.1 percent, to 20,943. The S&P 500 rose 0.8 percent one day after the Fed's decision.

In the European morning, the single currency traded at $1.071, a 0.2% decline from the previous day's market close, but up roughly 0.8% compared with where it was before the Fed made its policy announcement Wednesday. Although there are lingering concerns about Trump's ability to implement his pro-business agenda, their enactment could cause the Fed to quicken its pace of rate increases-a negative for gold.

Still, some market strategists see near-term headwinds for precious metals, especially since the bullish sentiment spurred by President Donald Trump's proposals to juice the USA economy through fiscal-stimulus measures haven't entirely vanished.

Holdings of SPDR Gold Trust fell 0.28% to 837.06 tonnes on Thursday from 839.43 tonnes on Wednesday. Investors had been nervous about Wednesday's Dutch election, where politicians had railed against the European Union and immigration. After the United Kingdom vote last summer to leave the European Union, investors were anxious about whether a wave of nationalism across the continent could eventually break the European union apart.

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Analysts said the election this week in Holland had calmed concerns over political risk in Europe, as Dutch center-right Prime Minister Mark Rutte fought off the challenge of anti-Islam and anti-EU rival Geert Wilders. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 8.7 basis points to 2.508 percent.

The rate forecasts "triggered selling on disappointment, as an increasing number of market participants had bet on a total of four rate hikes this year", an official at a major Japanese bank said.

A victory for Wilders's party "may cause the euro to give back more of the gains it posted following the recent European Central Bank meeting, and in combination with a rate hike by the Fed, it could push euro/dollar gradually lower for another test near the key 1.0500 territory", he said. The pullback came before the Federal Reserve policy decision, due at 6 p.m. London time, or 2 p.m. The precious metals had lost Rs 400 in the last two days.

On Thursday, Hong Kong stocks were up 1.7 percent, Shanghai adding 0.8 percent and Seoul advancing 0.8 percent.