Janet Yellen Speech Moves Gold Price
In the early hours of Tuesday, March 29, the gold price started moving in anticipation of a speech by Janet Yellen. Investors were uncertain as to what the Federal Reserve was planning for U.S. monetary policy, which is why volatility spiked in the yellow metal.
Yellen’s speech to the Economic Club of New York could hopefully shed some light about how the Federal Reserve is interpreting recent economic data. Investors are paying extra attention to this speech, because it comes on the heels of a Federal Reserve decision to hold interest rates steady.
Rather than hike interest rates as planned, the way the Fed did in December 2015, Yellen and her peers on the Federal Open Market Committee (FOMC) decided to bide their time. They pushed the deadline. And then, shockingly enough, Yellen started to talk about negative interest rates. (Source: “Negative interest would test banks’ creativity,” CNBC, March 23, 2016.)
Are rates going to stay even? Will the Federal Reserve raise them in June or cut them? The truth is that no one can say for sure and that level of uncertainty is disrupting markets.
Traders saw the price of gold dip to $1,218 around 5:40 a.m. before skyrocketing to $1,230 around 11:00 a.m. The swings are expected to continue as markets dissect and digest the text of Yellen’s remarks.
As the stewards of U.S. monetary policy, Yellen and her peers on the FOMC are keeping a weathered eye on unemployment, inflation, and economic growth. Every sentence they utter is parsed by analysts who then update their models based on new expectations.
Many observers have commented on a noticeable shift in the Federal Reserve’s tone since the December rate hike. That much-awaited tightening of monetary policy was supposed to be a sign of an improving economy, but talk of negative interest rates is casting a shadow over that optimism.