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Fed's stance supports gold but rising bond yield likely to keep prices in check

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To fight the coronavirus' drag on the economy, the US Federal Reserve System took bold steps a year ago. During two unscheduled meetings on March 3, 2020 and March 15, 2020, the Federal Open Market Committee (FOMC) voted to scale back the firing range for the federal funds rate by one-and-half percentage points, dropping it to close zero. More efforts continued and a year later, the Fed again pledged to stay the rate of interest low through 2023 and continued an asset purchase programme under which the financial institution buys a minimum of $120 billion of bonds a month.

The Fed's projections for GDP and percentage are indicating a speedy economic recovery. The Fed raised its forecast on GDP growth for 2021 to a 6.5 percent annualised rate, from 4.2 percent, which can be the strongest growth in almost 40 years.

The Fed forecasts unemployment to fall to 4.5 percent from 6.2 percent, which is more favourable than a 5 percent FOMC estimate in December. Additionally, Fed forecasts it to be 4.2 percent in 2022, 3.7 percent in 2023 and therefore the longer run rate is projected at 4 percent.

However, Fed chairman Jerome Powell said he expects inflation to rise this year. The Fed sees inflation at 2.4 percent in 2021 but expects it to fall to 2 percent, the target rate, subsequent year. Fed officials made no mention of recent rises in bond yields, or any effort to combat the resurgent bond movements.

Government bond yields have surged to the amount last seen before the COVID-19 pandemic. Inflation is termed to be bad for bonds and rising yields is indicative of selling fettered . The Fed looks comfortable with some increase in yields goodbye because it may be a reflection of economic recovery.

In case inflation spirals out of control, the Fed has other measures to douse the hearth . Four of the 18 FOMC members were trying to find a rate hike in 2022, compared with only one at the December meeting and for 2023, seven members see a hike, compared with five in December.

Gold prices bounced from the recent low of $1,673.30 but still stand at $1,731 an oz , significantly lower from the August 2020 high of $2,107.6. The Fed sounded more dovish within the March 2021 statement, which was supportive of gold prices, however, a falling safe-haven demand after robust economic recovery and rising bond yield is probably going to stay prices in restraint .

Gold, which bounced from the recent low of $1,673.3, is probably going to face stiff resistance near 50-day EMA at $1,778 while it's going to find support around $1,715 and $1,687.

Disclaimer: The views and investment tips expressed by experts on are their own and not those of the web site or its management. advises users to see with certified experts before taking any investment decisions.

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