SINGAPORE: Gold will rise after the Federal Reserve pledged
to stick to its gradual pace of tightening as negative real interest rates
deepen and weigh on the dollar, according to Wayne Gordon, executive director
for commodities and forex at UBS Group AG’s wealth management unit.
The Fed raised rates by a quarter percentage- point on
Wednesday, and policy makers penciled in two more quarter-point increases this
year and three in 2018, unchanged from projections in December.
Chair Janet Yellen said the central bank was willing to tolerate
inflation temporarily overshooting its 2% goal and intended to keep its policy
accommodative for “some time.”
“Last night was really setting the scene for the next
three-to-six months,” Gordon said in a Bloomberg TV interview.
“Yellen was very, very clear” that although she sees risks
to the economy as balanced and sounded more optimistic, she’s going to stick to
three rate hikes this year and three next year, he said.
“That means real interest rates go deeper into negative
territory in the United States, that means a weaker US dollar and it means a
better gold price.”
Gold is up almost 7% this year as investors favored haven
assets amid political risks such as the Donald Trump presidency, elections in
Europe and the Brexit process. Precious metals are top of Morgan Stanley’s
commodity picks.
But Societe Generale SA recommends selling on rallies as it
sees gold declining amid further tightening by the Fed and limited impact from
political events.
Spot bullion added 0.6% to US$1,227.19 an ounce yesterday
after jumping 1.7% a day earlier, the most in six months, on the Fed rate
outlook.
UBS sees gold at US$1,300 this year, while SocGen has
forecast an average of US$1,125 in the fourth quarter.
Policy makers forecast inflation will reach 1.9% in the
fourth quarter this year, and 2% in both 2018 and 2019, according to quarterly
median estimates released with the Federal Open Market Committee statement. The
Fed’s preferred measure of inflation rose 1.9% in the 12 months through
January, just shy of its target.