Gold Rebounds as Investors Weigh Fed’s New Approach on Inflation

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There's still room for bullion to set new all-time highs, although that may take time, said Ole Hansen, head of commodity strategy at Saxo Bank A/S.

However, the Fed's sweeping change of its approach to its dual role of achieving maximum employment and stable price could cause financial market volatility, Veerathai Santiprabhob told Reuters.

European stocks were mixed on Friday as markets continued to try and make sense of the historic shift on inflation announced by US Federal Reserve chair Jerome Powell.

"The new policy framework is meant to help keep real yields low well into the economic recovery by dampening expectations for rate hikes until the labour market has tightened significantly, and by encouraging higher inflation expectations through displaying a greater tolerance to allow an overshoot in the future".

For now though, higher Treasury yields is certainly something that is making the trading situation a little more tricky and the risk-off move in Japanese markets following Abe's reported resignation complicates the yen picture even further this week.

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Prior to the coronavirus pandemic the USA unemployment rate had hovered near 50-year lows at 3.5 percent, which brought many people back into the workforce as firms struggled to fill open positions. Powell called the move a "robust updating of Fed policy".

"There's is still a healthy economy under here, except for this area that's been directly affected by COVID", Powell said in a discussion as part of the Jackson Hole central banking conference. First of all, inflation has to reach 2% and it hasn't been at that level since 2012. On Thursday, prices slumped as much as 2.3 per cent after rising 1.1 per cent.

Advocates of the new regime have argued the central bank needed to let the inflation rate drift higher to average 2.0 percent over the longer run.

"While the Fed will likely need to ramp up their asset purchases to support the economy, they didn't provide any signs that will happen soon", Moya said.

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