Gold holds near two-week highs as Yellen cools rate-hike expectations

Gold stayed close to two-week highs Monday after Federal Reserve chief Janet Yellen delivered a speech in Philadelphia in which she implicitly signaled that no interest-rate hike is likely in June.

Gold was trading near $1,244 by the afternoon, while silver also was steady near $16.40.

I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run, Yellen said. However, her refusal to set a clear timetable for such a hike means that June will see no tightening action from the Fed.

Forget about June for Fed action: “Yellen expresses optimism throughout the speech but she doesnt repeat her guidance from less than two weeks ago that a rate hike would be forthcomingin coming months, Citi analyst Steve Englander noted.

Based on her speech today, Fed Chair JanetYellenmight still be infavourof a July rate hike, but it will require a bounce-back in Junes employment figures and a vote by the UK to remain in the European Union, Capital Economics economist Paul Ashworth added, while Jefferies analyst Thomas Simons wrote, Yellenis being careful not to shut the door on the July meeting (forget about June at this point), but she is also not sending a signal that the Fed is leaning toward a hike in July unless we have a run of strong data that shows the May employment data was a temporary deviation from trend.

Hike means turbulence for stocks: Of course, some Fed watchers are sticking to the more hawkish premise that the central bank will launch two rate increases this year.

“What you’re seeing in Yellen’s comments today is the Fed is not willing to abandon the promise of at least two rate hikes later this year,” said Michael Arone of State Street Global Advisors. “The Fed’s saying, Hold on a minute, there are a number of positives that are occurring and we’re holding tight to the idea that we could be raising rates a couple times this year.

But given the approaching U.S. presidential election in November, the Fed, if it acts, really only has a window to do so in July, lest it be accused of interfering in political campaigns.

But if it does move this year, look out for volatility in the stock market. Even if the dollar does rise, even if the Fed does raise rates a little bit, I think it’s going to create turbulence in the equity market, and the selloff in the equity market, the risk aversion, is going to help gold,” predicted Boris Schlossberg, a managing director at BK Asset Management.

“Gold is at a critical juncture right now, holding that $1,200 support,” he said. “If it can hold that, then it will begin to rally and most importantly, if gold can break the $1,300 to the upside, it’s just a screaming buy for the gold miners.”