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Gold prices rebound after Fed accelerates tapering pace

By Daniel Tyson

16:16, 16 December 2021

Seven bars of gold
Gold prices rebound after US Fed tapers asset purchase programme – Photo: Shutterstock

Gold prices rallied Thursday morning and yields on US Treasuries fell a day the US Federal Reserve outlined plans to slow bond purchases and a survey of members suggested three interest rate raises in 2022.

At 8:00 ET (UTC-5) gold futures were indicated at $1,783.90 per ounce, three hours later the price jumped to $1,798.30, less than $2 below the precious metal’s $1,800 psychological threshold.

Powell’s power

On Wednesday, the 12-member Federal Open Market Committee (FOMC) announced the US central bank would begin reducing its purchases of Treasury bonds by $10bn (£7.6bn) a month and mortgage-backed securities by $5bn, which could end the stimulus program by June 2022.

Meanwhile, yields on 10-year Treasury notes retreated to 1.431% Thursday from 1.460% on Wednesday. Yields move in the opposite direction to bond prices and barely moved in response to the Fed’s shift to tighten monetary policy, according to CNBC.

People from Wall Street to Main Street took interest in what was said at the meeting. A survey of the FOMC members – known as dot plots – suggests the central bank could raise the federal funds rate three times next year to a range of 0.75%–1% from its current range of 0%­–0.25%.

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COVID-19 impact

Analysts believe gold could get a boost from investors who want to hedge economic risks from the Omicron variant.

Oil - Crude

71.41 Price
+2.320% 1D Chg, %
Long position overnight fee -0.0204%
Short position overnight fee -0.0015%
Overnight fee time 22:00 (UTC)
Spread 0.030

Gold

2,004.85 Price
-1.180% 1D Chg, %
Long position overnight fee -0.0198%
Short position overnight fee 0.0116%
Overnight fee time 22:00 (UTC)
Spread 0.50

Silver

23.02 Price
-3.350% 1D Chg, %
Long position overnight fee -0.0204%
Short position overnight fee 0.0122%
Overnight fee time 22:00 (UTC)
Spread 0.020

Natural Gas

2.52 Price
-0.450% 1D Chg, %
Long position overnight fee 0.0718%
Short position overnight fee -0.0937%
Overnight fee time 22:00 (UTC)
Spread 0.0050

“This could possibly be because of rising cases due to the Omicron variant, which persuaded investors to take some exposure to the precious metal until the coronavirus situation cools down,” said Naeem Aslam, chief market analyst at AvaTrade in a client note obtain by Capital.com.

Fed Chair Jerome Powell’s announcement didn’t immediately send gold prices up. They declined 0.4% Wednesday, according to FactSet data, marking a two-week low settlement.

“This is odd because when a central bank acts aggressively, the dollar index usually climbs as higher interest rates push the demand for that currency higher. However, this was not the case after yesterday’s FOMC meeting,” Aslam wrote.

The Fed’s announcement had a positive impact on precious metals. Silver futures for February 2022 was up 4.5% to $22.52 an ounce; Copper jumped more than 3% to $4.31 per pound; Platinum was selling at $936.70 per ounce, up 3.6% and Palladium was nearly 10% higher at $1,706 per ounce.

Meanwhile, the ICE US dollar index was down 0.02%.

Read more: Copper price edges higher as markets eye signs of US rate hike

Markets in this article

Copper
Copper
3.83806 USD
0.03496 +0.920%
Gold
Gold
2004.85 USD
-23.96 -1.180%
Palladium
Palladium
956.70 USD
-33.6 -3.470%
Platinum
Platinum
924.15 USD
9 +0.990%
Silver
Silver
23.018 USD
-0.797 -3.350%

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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