Gold holding neutral ground as the Fed sees inflation as bigger risk than slower growth

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(Kitco News) – The gold market is holding its ground, trading in neutral territory as the Federal Reserve looks to ramp up its tightening cycle, raising interest rates by 50 basis points and reducing its balance sheet in May, according to the comments made in the minutes from the March monetary policy meeting.

“Many participants noted that one or more 50 basis point increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said. “Participants judged that the committee’s approach of commencing increases in the target range for the federal funds rate, and indicating that ongoing increases were likely, was fully warranted. Participants judged that it would be appropriate to move the stance of monetary policy toward a neutral posture expeditiously.”

The minutes also showed that the central bank is ready to reduce its balance sheet.

“Participants also agreed that reducing the size of the Federal Reserve’s balance sheet would play an important role in firming the stance of monetary policy and that they expected it would be appropriate to begin this process at a coming meeting, possibly as soon as in May, “the minutes said.

Although many committee members favored a 50-basis point move in March, the committee agreed that a 25-basis point hike was more appropriate as geopolitical uncertainty rose significantly after Russia invaded Ukraine.

Looking ahead, the minutes showed that the monetary policy committee sees inflation as a more significant risk to the economy than potentially slower growth.

“Several participants judged that the upside risk to inflation associated with the war appeared more significant than the downside risk to growth, as inflation was already high, the United States had a relatively low level of financial and trade exposure to Russia, and the US economy was well positioned to absorb additional adverse demand shocks,” the minutes said.

The hawkish tone in the minutes is having little impact on gold prices, with the market holding its consolidation pattern. June gold futures last traded at $1,927.30 an ounce, unchanged on the day.

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