By Tatyana Shumsky
Gold prices spiked higher Wednesday after the Federal Reserve
sowed doubts about a potential interest-rate increase in September,
citing stubbornly low inflation as a concern.
The Federal Open Market Committee, the central bank's
policy-setting arm, said it remains on course to raise interest
rates but flagged low inflation as a point of concern among
officials that could prompt them to delay. Inflation has continued
to run below the Fed's 2% target, and officials said they were
monitoring developments closely--a sign of alarm. Still, solid
gains in employment and moderate growth in the overall economy
place the U.S. central bank on track to tighten policy soon. Fed
officials have three scheduled policy meetings left this year, with
September being the next one.
"The statement was pretty dovish, and there was no dissent in
the announcement," said Bob Haberkorn, a senior commodities broker
with RJO Futures in Chicago.
Gold prices had been posting losses ahead of the Fed's policy
statements, but rallied to $1,100.90 a troy ounce in response in
aftermarket trading. Yet, just as quickly, gold gave up the
gains.
"The fact that the rally in metals wasn't sustained shows you
how cautious traders are in with the precious metals market," Mr.
Haberkorn said.
Gold prices have been plumbing five-year lows as investors
prepared for the Federal Reserve to raise interest rates for the
first time in nearly a decade by selling their gold holdings. The
U.S. economic recovery is gathering momentum, with gains in
employment, manufacturing and home construction powering the
rebound. Many investors believe this puts the Fed closer to
removing the emergency measures enacted in the wake of the 2008
financial crisis. This is bad news for gold, which doesn't pay an
income, costs money to hold and would struggle to compete with
yield-bearing assets once rates climb.
"The fact that there's still a rate increase possible is going
to pressure this market for the remainder of the year," Mr.
Haberkorn said.
The most actively traded gold contract, for August delivery,
settled down $3.60, or 0.3%, at $1,092.60 a troy ounce on the Comex
division of the New York Mercantile Exchange. Gold settled at 1.30
p.m. ET, roughly half an hour before the FOMC released its policy
statement.
Write to Tatyana Shumsky at tatyana.shumsky@wsj.com