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Gold prices slipped over 1% on Wednesday after U.S Federal Reserve officials brought forward projections for the first post-pandemic interest rate hikes into 2023.

·         Spot gold fell 1.1% to $1,839.06 per ounce, having earlier hit its lowest level since May 14 at $1,833.65.

·         U.S. gold futures settled up 0.3% at $1,861.40

·         In its new projections, 11 out of 18 Fed officials projected at least two quarter-point interest rate increases for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage an ongoing jobs recovery.

·         SPDR GOLD HOLDINGS:

 

·         “The Fed has a gameplan that they’re going to be a removing all this accommodation and it’s just this initial knee jerk reaction (in gold)” said Edward Moya, senior market analyst at OANDA, adding that the Fed was more hawkish than markets expected and gold could fall further towards $1,830.

 

“But the Fed is not going to be leading the charge in tightening against other major central banks and it will be one of the last to tighten, allowing for dollar weakness to remain fully intact” which should support gold, Moya said.

 

·         The central bank however held its benchmark short-term interest rate near zero and said it will continue to buy $120 billion in bonds each month to fuel the economic recovery.

·         Gold was further bruised by a jump in the dollar and yields after the announcement. Higher yields raise the opportunity cost of holding non-yielding bullion.

·         Market participants are now keeping a close watch on Fed Chair Jerome Powell’s news conference after the statement.

·         Powell said Fed policy would continue to deliver “powerful” support to economy and flagged concerns over the economic recovery. He also said inflation could turn out to be higher and more persistent than expected.

·         Silver rose 0.3% to $27.71 per ounce.

·         Palladium rose 1.6% to $2,805.86 an ounce.

·         Platinum fell 1.6%, to $1,134.50.

 

·         Dollar jumps after Fed pulls interest rate hikes into 2023

The dollar jumped against a basket of currencies on Wednesday after the Federal Reserve brought forward its projections for the first post-pandemic interest rate hikes into 2023, citing an improved health situation and dropping a longstanding reference that the crisis was weighing on the economy.

The dollar index, which tracks the greenback against six major currencies, was up 0.41% at 90.901, its highest since May 7.

“The USD remains narrowly mixed to slightly softer ahead of the Fed meeting, with the major currencies essentially holding in established ranges,” Shaun Osborne, chief currency strategist at Scotiabank, said in a note.

Market participants will be listening to the news conference after the Federal Open Market Committee (FOMC) meeting for any change in tone from Fed Chair Jerome Powell about whether inflation is likely to be temporary or longer-lasting.

“We see no major changes in the policy outlook, with disappointing jobs data precluding the Fed from declaring that it is making substantial progress towards its objectives and paving the way for a tapering in asset purchases,” Osborne said.

“Tweaks to the statement and projections will have to recognize higher inflation,” Osborne said.

 

·         TREASURIES-Yields rise as Fed eyes earlier start to rate hikes

U.S. Treasury yields zoomed higher on Wednesday after Federal Reserve policymakers moved up their projections for commencing interest rates hikes to 2023 from 2024 as the economy recovers from the coronavirus pandemic.

At the conclusion of its two-day policy meeting, the Fed disclosed that 11 out of 18 officials were projecting at least two quarter-point interest rate increases in 2023 even as the central bank pledged to keep a supportive policy in place to aid the ongoing jobs recovery.

The benchmark 10-year yield rose to its highest level since June 4 at 1.594%. It was last up 7.5 basis points at 1.5737%. The yield had trended lower over the last week as inflation concerns ebbed.

The five-year yield had its biggest one-day move since February, climbing to its highest level since April 6 at 0.913%.

 

·         Bitcoin’s recent rally appeared to run out of steam, as the world’s largest cryptocurrency fell 2.72% to $39,078.38.

 

·         Earlier Fed rate hikes will not jack up low projected borrowing costs -White House

The White House on Wednesday said it did not expect the Federal Reserve's projections for earlier post-pandemic interest rate hikes to significantly alter its own forecasts for longer-term rates and the cost of borrowing to fund planned investments.

A White House official welcomed the Fed's forecast for 7% growth in the U.S. economy given an improved health situation, saying it showed that President Joe Biden's push to accelerate vaccinations and get people back to work was paying off.

Fed officials on Wednesday projected an accelerated timetable for interest rate increases, beginning in 2023 instead of 2024, and said the 15-month health emergency was no longer a core restraint on U.S. commerce.

The White House official said the Biden administration would update its own economic forecasts in coming months to reflect an improving economy, but still believed that real debt service rates on the U.S. debt would remain negative to very slightly positive over the next decade.

 

·         S.Korea central bank, Fed extend currency swap line for three months to Dec 31

South Korea’s central bank on Thursday said it has agreed to renew an existing currency swap agreement with the U.S. Federal Reserve for another three months to at least Dec. 31, 2021.

The bilateral $60 billion currency swap deal was first signed in mid-March last year to prevent the coronavirus pandemic from causing a global economic rout and help stabilise the local currency market.

 

·         Bipartisan U.S. Senate group backs infrastructure framework

A bipartisan group of 20 U.S. senators - 10 from each caucus - said on Wednesday it supported a framework for infrastructure investment.

The statement followed an announcement last week that a smaller bipartisan group of senators had reached an agreement on an infrastructure framework, which a source said would cost $974 billion over five years and $1.2 trillion over eight years, and includes $579 billion in new spending.

That proposal falls short of President Joe Biden’s current $1.7 trillion offer. Infrastructure investment is one of the Democratic president’s top legislative priorities.

The White House told lawmakers this week it would take stock of where things stand by the end of next week, said spokesman Andrew Bates.

 

·         Biden vows to keep pressing Russia to release American prisoners

 

·         Far apart at first summit, Biden and Putin agree to steps on cybersecurity, arms control

U.S. President Joe Biden and Russian President Vladimir Putin agreed on Wednesday to begin cybersecurity and arms control talks at a summit that highlighted their discord on those issues, human rights and Ukraine.

 

·         CORONAVIRUS UPDATES:

·         CureVac fails in pivotal COVID-19 vaccine trial with 47% efficacy

 Reference: CNBC, Reuters, Worldometers