Gold price moves await Federal Reserve decisions
By Daniel Tyson
20:33, 13 December 2021
Gold prices continue to rebound Monday to their highest price in three weeks ahead of the US Federal Reserve’s gathering this week, an event which could determine bullish or bearish momentum for precious metals.
At 3 pm EDT (UTC-5) on Monday, an ounce traded at $1,788.50 (£1,353.46), up slightly, in the most-active contract since 22 November, according to FactSet data.
Potential gains currently limited
Some gains are occuring, but it appears gold prices will remain stuck in a trading range until investors get a better idea of how high the Fed expects interest rates to go over the next few years.
While an accelerated taper is mostly priced in, traders should be prepared for any “dovish surprises,” wrote Edward Moya, senior market analyst for OANDA, in an email to Capital.com.
Some analysts believe if gold moves higher than $1,810 it could pick up steam and head even higher, but they are doubtful that will happen before the Fed decision on Wednesday.
“Gold prices have not been a good inflation hedge over the past month and that is largely due to the strong dollar that has emerged from Fed hawkishness. Unless Fed rate hike expectations surge to three, to four rate hikes in 2022, gold should start to grind higher,” Moya said.
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Investors wait for Fed decision
Gold traders and investors are waiting for Wednesday’s monetary policy decision when, they believe, the Fed will give its update on projections of interest rates and the pace of erasing Covid-era stimulus.
Naeem Aslam, chief market analyst at AvaTrade, said the central bank’s meeting will likely be a big driver for the precious metal. “The Fed expects to tighten its monetary policy, which likely means that the American central bank will hike its policy rate sooner than initially expected as well. Thus, because gold is a non-interest-bearing asset, the opportunity cost of holding the precious metal will rise, making it less attractive to investors.”
On Friday, gold traded higher after the US government data showed consumer inflation rate was the highest in 39 years. Data on Friday revealed that in November the inflation rate rose to 6.8%, marking the highest annual rate since 1982 and more than triple the Fed's 2% target and the highest rate since July, 1982. Meanwhile, the consumer price index increased 0.8% in November, higher than some economists' forecast of 0.7%, according to the Wall Street Journal.
The rise in inflation supported gold prices last week as “the yellow metal is considered to be a safe-haven commodity, which investors use to hedge against inflation in times of uncertainty,” Aslam wrote in a client note Monday.
Trading on Comex, March copper dropped nearly 0.1% to $4.284 a pound. January platinum lost 1% to $924.60 an ounce, and March palladium declined by 4.3% to settle at $1,674.70 an ounce, down a third-straight session.