Gold futures notched back-to-back declines Wednesday, settling at their lowest levels in about two weeks, then lost even more ground after the Federal Reserve announced plans to speed up its tapering of bond purchases and raised the potential for three interest-rake hikes next year.
“Today, we have seen the aggressive side of the Fed; they used all bullets and came with all guns blazing,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update. “Hence, we have seen the gold price falling off the cliff, and the dollar index gained more strength.”
The Fed on Wednesday voted to speed up a reduction in its monthly bond purchases to $30 billion, bringing its buying program to a halt in March rather than June. That would allow the Fed, which isn’t expected to raise interest rates until it has halted the purchases, to begin the hiking process earlier than expected.
For gold, higher interest rates and tighter monetary policy may overshadow concerns about inflation, which have been percolating amid the spread of the new omicron variant of the virus that causes COVID-19.
The Fed also penciled in three increases in short-term interest rates in 2022, up from the one move projected in September.
On Wednesday, February gold
GCG22,
-0.58%
GC00,
-0.58%
fell $7.80, or 0.4%, to settle at $1,764.50 an ounce ahead of the Fed news, marking another settlement at the lowest for a most-active contract since Dec. 2, FactSet data show. Prices saw a 0.9% decline on Tuesday.
In electronic trading after the Fed announcement, prices moved even lower to $1,761.40.
The FOMC statement included a “more defined” tapering schedule, and now expectations of three interest rate increases in 2022, Jeff Wright, chief investment officer at Wolfpack Capital, told MarketWatch. “The FOMC also lowered U.S. economic GDP projections for the balance of 2021.”
“All of these policy alterations and growth projections are not supportive for gold,” said Wright.
Meanwhile, a batch of U.S. data early Wednesday, including retail sales, saw precious metals flit in and out of positive territory briefly. U.S. November retail sales rose 0.3% in November, falling below forecast of 0.8%. Retail sales, excluding autos rose 0.3%, also lower than consensus estimates for 1%, from economists polled by Dow Jones.
Meanwhile, New York’s Empire State factory index rose to 31.9 in December from 30.9 in prior month.
In other Comex trading Wednesday, March silver
SIH22,
-1.59%
declined by 1.7% to $21.545, after a 1.8% fall a day earlier. March copper
HGH22,
-1.64%
lost 1.8% to $4.183 a pound. January platinum
PLF22,
-1.91%
declined by 1.8% to $894.20 an ounce and March palladium
PAH22,
-3.74%
settled at $1,551.60 an ounce, down 4.4%.
