Metals: Gold Reverses Losses After Fed Statement

By Stephanie Yang and David Hodari Features Dow Jones Newswires

Gold prices reversed losses Wednesday after the Federal Reserve kept interest rates unchanged at its latest meeting.

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Futures for August delivery were recently up 0.3% at $1,255.80 a troy ounce in electronic trading, changing course after closing down 0.2% at $1,249.40 on the Comex division of the New York Mercantile Exchange.

The move higher came after the Fed left interest rates unchanged and said it would start shrinking its balance sheet "relatively soon." While traders largely expected the central bank to keep short-term rates at current levels, notes about lower inflation sparked some concerns that further rate increases may be delayed if the economy slows.

"It shows that we're probably months away from any sort of interest-rate hike," said Timothy Major, a broker at Paulson Investment Co. "That's going to give gold a short-term boost."

Bearish bets by speculative investors rose to the highest level since December 2015 last week, according to data from the Commodity Futures Trading Commission. The elevated short positions helped boost gold, said Charles Feitel, director of metals at Société Générale, as Fed officials gave little indication of an imminent rise in interest rates.

"The positioning in the market was much more poised to rally off of favorable news," Mr. Feitel said.

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Gold pays its holders nothing and struggles to compete with yield-bearing assets when borrowing costs rise.

The U.S. dollar weakened after the Fed statement, making dollar-denominated metals cheaper for foreign buyers. The WSJ Dollar Index, which gauges the dollar against 16 other currencies, was recently down 0.4% at 86.38.

Meanwhile, copper prices climbed for the fifth consecutive session in a row on Wednesday, boosted by optimism over Chinese demand. Futures for September delivery settled up 0.9% at $2.8720 a pound in New York, closing at the highest level since May 2015.

Copper prices have built up momentum after the International Monetary Fund raised forecasts for Chinese economic growth.

Also buoying copper was news out of China that the government is looking to ban scrap imports for copper extraction, a process that raises pollution levels, according to Xiao Fu, head of commodity strategy at Bank of China International.

"That could take 900,000 tons of content copper [not pure copper] out of the Chinese market, which is potentially very impactful," Ms. Fu said.

"Given that we already saw supply tightness lead China to switch to copper imports earlier this year, this could see a pickup in concentrate and refined copper imports," the strategist said.

Write to Stephanie Yang at stephanie.yang@wsj.com and David Hodari at David.Hodari@dowjones.com

(END) Dow Jones Newswires

July 26, 2017 15:16 ET (19:16 GMT)