Gold costs increased in the afternoon of Asian trading hours on Thursday after a dovish U.S Federal Reserve opened the door to further rate cuts.
Spot gold costs surged to their highest level since March 2014, Reuters said. As of 12:42 am ET Thursday, it was 1.33% higher at around $1,378.01 per ounce.
Gold futures also noticed strong gains to $1,382.10 per ounce. They’d earlier soared 3% to $1,397.70 per ounce, according to Reuters.
Following the Fed meeting on Wednesday, where the U.S. central bank left rates of interest unchanged however opened the door for a possible rate cut in the future; the 10-year Treasury yield also slipped below 2% for the first time since November 2016 — breaching an important psychological level.
The benchmark note-last traded at 1.9872%, as of 12:40 a.m. Thursday ET.
One economist told CNBC that the surge in the gold price have been obviously pushed by the declines in yields of shorter-duration Treasurys ranging between three months and two years. The yield on the three-month Treasury note trickled lower to 2.175%, as of 7:30 p.m. ET Wednesday. The 2-12 months’ notice dropped by 2.01% to about 1.731%, as of 12:40 a.m. ET Thursday.
With expectations for the U.S. Federal Reserve’s funds rate to drop by 2020, gold has turn into “quite attractive” as a result, said Rob Carnell, chief economist and head of research for the Asia Pacific at ING.
The shorter end of the yield curve tends to move consistent with the rate of interest movement, means that lower expected Fed funds rate will likely drive short term yields down. As the yields on the shorter-duration notes go down, gold becomes more attractive as an investment option due to its relatively higher yield.
Fed Chair Jerome Powell mentioned at a post-meeting news conference that “many participants now see the case for the somewhat more accommodative policy has strengthened. ”