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(Bloomberg) — Gold headed for a third weekly drop as investors weighed the impact of the Federal Reserve’s new approach to setting U.S. monetary policy, with a more relaxed stance on inflation.

Chair Jerome Powell said that the Fed will seek inflation that averages 2% over time, a step that implies allowing for price gains to overshoot. He also noted that “if excessive inflationary pressures were to build or inflation expectations were to ratchet above levels consistent with our goal,” the central bank wouldn’t hesitate to act.

Bullion swung sharply Thursday as investors parsed the speech delivered virtually for the Fed’s annual policy symposium traditionally held in Jackson Hole, Wyoming. It rallied to an all-time high earlier this month as governments and central banks employed stimulus measures to curb the coronavirus pandemic’s damage on economies.

Higher inflation tolerance and low interest rates should see U.S. real yields fall in the medium-to-longer term, which is supportive of gold, said Vivek Dhar, an analyst at Commonwealth Bank of Australia (OTC:CMWAY). Still, the fact that the Fed will also act if there are inflationary pressures adds doubt to how high U.S. 10-year inflation expectations can reach, he said.

“The near V-shape rebound in U.S. 10-year inflation expectations since mid-March is at risk of stalling,” said Dhar. “This is negative for gold and has outweighed the Fed’s inflation tolerance comments likely because gold markets weren’t expecting Powell’s intolerance for inflation getting too high.”

Spot gold fell 0.1% to $1,927.28 an ounce at 8:20 a.m. in Singapore. On Thursday prices slumped as much as 2.3%.

The Fed’s shift to let inflation and employment run higher may signal that policy makers will keep interest rates low for years to come, lifting the appeal of non-interest-bearing gold.

“Gold bulls initially rejoiced the announcement of seeking inflation to average 2% over time, but then quickly came crashing down after noting the inflation overshoots could be moderate,” Edward Moya, senior market analyst at Oanda Corp., said in a note. “After the longest record long expansion failed to yield inflation, Wall Street is skeptical that the Fed will really see inflation anytime soon even when the economy is beyond the coronavirus.”

Since the central bank officially set its inflation target at 2% in 2012, the Fed’s preferred measure of price increases has consistently fallen short of that objective, averaging just 1.4%. That challenge was part of the impetus for the strategy review. Low inflation contributes to low interest rates, which reduces the Fed’s ability to fight off economic downturns — potentially making them deeper and longer.

“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. “Gold’s path back to record high territory is still there, it will just take a while longer to get there.”

©2020 Bloomberg L.P.

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