Gold prices trudged higher on Wednesday after the U.S. Federal Reserve left interest rates unchanged at its September meeting as it wants to see further improvement in the labor market and more sign of strength in the economy. The Fed, however, signalled one hike by the end of the year.
Bullion Gains as Fed Stands Pat
Gold prices for December delivery on the Comex division of the New York Mercantile Exchange closed 1% higher at $1,331.40 a troy ounce yesterday, the highest level since Sep 9. Prices of the metal are up roughly 25% year to date.
The Fed kept benchmark interest rates steady in the band of 0.25%-0.50%. The central bank, in its statement, said that “the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” A delay in raising interest rates elevates demand for gold, which produces no income but relies on price appreciation to attract investors.
The Fed statement noted a pickup in economic activity since a choppy first-half 2016 and strong growth in employment and household spending. But it added that business fixed investment remains weak. The Fed also stated that near-term risks facing the economy appear “roughly balanced.”
Gold prices also gained support from a slump in the U.S. dollar that hit a one-month low yesterday on the combined effect of the dovish Fed stance and Bank of Japan’s announcement that it would focus on keeping the yield on 10-year Japanese government bonds at zero in its latest bid to tackle deflation. The Fed’s announcement also triggered a spurt in the equity markets yesterday.
Gold is enjoying a solid run in 2016 after three lackluster years. Gold prices broke above the $1,300 per troy ounce level in Jun 2016 after Britain voted to leave the European Union (EU). The market-shattering move sparked as much as around 8% surge in the metal’s prices to trade at levels last seen in Jul 2014. The Brexit-induced chaos in the global markets spurred investors’ demand for safe havens, triggering a strong rally in gold.
Moreover, gold prices have been gaining support from expectations that central banks around the world would step up monetary stimulus to avert economic damages from Brexit. The deferral of U.S. interest rate hikes has been another major factor that has helped gold regain its shine this year after a tumultuous 2015. Prices of the metal rose more than 2% in second-quarter 2016, aided by a supportive macro environment.
Still Room for Further Upside
A low-rate environment augurs well for the yellow metal. Moreover, there is still a lot of risk in the market that are expected to support prices of the metal in the coming days. Concerns about global economic growth and lingering economic and political uncertainties are likely to act in favor of gold in the near to medium term.
Moreover, gold prices are generally helped by retail demand in countries like India and China, with the wedding and festival seasons occurring in the second half of the year. India will be a major driver with pent up demand having intensified due to the shutdown of jewelry stores earlier this year.
5 Glittering Gold Stocks to Buy Now
The current low interest rate climate makes a solid investment case for gold stocks. As the scenario for bullion remains favorable, we recommend investors to scoop up some top-quality gold mining stocks that boast solid growth prospects and a good Zacks rank. These companies saw their shares jump following the release of the Fed statement yesterday and have also delivered healthy year-to-date returns.
Newmont Mining Corporation (NEM - Analyst Report)
Colorado-based Newmont is engaged in the exploration and production of gold, and the acquisition and development of gold properties worldwide. It is one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia/New Zealand and Ghana.
The company carries a Zacks Rank #1 (Strong Buy) and saw its shares climb around 7.6% yesterday. The stock has gained roughly 128% year to date. The company has expected earnings growth of 91.3% for the current year.
New Gold, Inc. (NGD - Snapshot Report)
Vancouver, Canada-based New Gold is engaged in the acquisition, exploration, development, and operation of mineral properties. It primarily explores for gold, silver and copper deposits.
New Gold has a Zacks Rank #1 and saw its shares rise roughly 5.7% yesterday. The stock has racked up a roughly 107% gain so far this year. The company has expected earnings growth of around 491.7% for the current year. The Zacks Consensus Estimate for 2016 has moved up 100% over the last 30 days.
AngloGold Ashanti Ltd. (AU - Snapshot Report)
Headquartered in Johannesburg, South Africa, AngloGold Ashanti operates as a gold mining and exploration company.
AngloGold Ashanti, which sports a Zacks Rank #2 (Buy), saw its shares shoot up roughly 10.4% yesterday. The stock has gained roughly 135% year to date. The Zacks Consensus Estimate for 2016 has moved up around 19% over the last 30 days. The stock has expected earnings growth of 440% for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.
IAMGOLD Corp. (IAG - Snapshot Report)
Toronto-based IAMGOLD is engaged in the exploration, development and operation of gold mining properties. It also explores for copper and silver. The company holds interests in four operating gold mines, as well as exploration and development projects located in Africa, South America and Canada.
IAMGOLD holds a Zacks Rank #2 and has saw its shares jump around 7.9% yesterday. The stock has gained roughly 218% year to date. The company has expected earnings growth of roughly 111.6% for the current year.
Eldorado Gold Corp. (EGO - Snapshot Report)
Vancouver, Canada-based Eldorado Gold is a gold producing and exploration company with gold assets in Turkey, China, Greece, Brazil and Romania.
The company, which has a Zacks Rank #2, saw its shares gain roughly 5.8% yesterday. The stock has gained roughly 42% year to date. Eldorado Gold has expected earnings growth of 140% for the current year. The Zacks Consensus Estimate for the current year has moved up roughly 67% over the last 30 days.
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