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Gold retreats on dollar rally as Fed taper looms

Gold fell in choppy trading on Wednesday as the dollar rose and on growing confidence that the U.S. Federal Reserve would soon begin winding down its economic support measures.

·         Spot gold was down 0.7% at $1,722.50 per ounce by 1:32 p.m. EDT, after hitting its lowest since Aug. 10 at $1,720.49.

·         U.S. gold futures settled 0.8% lower at $1,722.9.

·         The appreciating dollar is limiting gold’s upside, said Jim Wyckoff, senior analyst at Kitco Metals, making the metal more expensive to holders of other currencies.

″(If) stock markets become unstable again, gold could see better safe-haven demand entering the historically turbulent month of October,” Wyckoff added.

The dollar, an alternate “safe haven”, rallied to a one-year high against rival currencies, even though a deadlock in Washington over the U.S. debt ceiling threatened to plunge the government into a shutdown.

If the government does start to shut, it could lift gold and silver due to their safe-haven appeal, Wyckoff added.

·         Providing some respite to gold, 10-year U.S. Treasury yields eased, although they held above 1.5%, a level not seen since late June, still posing a challenge for bullion.

·         Yields have risen on expectations for a sooner-than-expected rate hike by the Fed, which could translate to more losses for gold, FXTM analyst Lukman Otunuga said, as it would raise the opportunity cost of holding non-yielding bullion.

·         Philadelphia Fed Bank President Patrick Harker said “it will soon be time to begin slowly and methodically” tapering bond purchases.

·         Gold may be influenced by speeches from central bankers as well as the August print for the Fed’s preferred inflation gauge, Otunuga added.

·         In other metals, silver fell 4.3% to $21.47 per ounce, platinum shed 2.3% to $944.88. Palladium fell 1.4% to $1,850.00.

 

·         Copper falls as power shortages grip top consumer China

Benchmark copper on the London Metal Exchange (LME) was down 0.9% at $9,189.50 a tonne at 1605 GMT after falling 1% on Tuesday.

 

·         U.S. pending home sales race to seven-month high in August

The National Association of Realtors (NAR) said on Wednesday its Pending Home Sales Index, based on signed contracts, jumped 8.1% last month to 119.5. That was the highest reading since January and followed two straight monthly declines.

·         Markets Focus

 

·         Democratic disagreements imperil Biden agenda as shutdown looms

President Joe Biden's agenda was at risk of being derailed by divisions among his own Democrats, as moderates voiced anger on Wednesday at the idea of delaying a $1 trillion infrastructure bill ahead of a critical vote to avert a government shutdown.

 

·         House passes debt ceiling suspension that is doomed in the Senate

The House on Wednesday passed a bill to suspend the U.S. debt ceiling as the country barrels toward a first-ever default with no clear solution in sight.

Republicans will sink the plan in the Senate. The GOP has opposed any effort to raise the borrowing limit and appears intent on making Democrats address it as part of their sprawling investment in social programs and climate policy.

Treasury Secretary Janet Yellen has told lawmakers the U.S. will run out of ways to pay its bills around Oct. 18. If Congress fails to suspend or raise the debt limit before the deadline, lawmakers risk a default that could cost millions of jobs, jeopardize government benefits and crash the financial markets.

 

·         Debt ceiling worries start to rattle Wall Street

The slim-but-growing possibility of a fiscal crisis if Congress doesn’t act on the debt ceiling is getting increasing attention from U.S. investors and is filtering into certain asset prices, though few believe the nation will ultimately default.

·         Fed Chair Powell calls inflation ‘frustrating’ and sees it running into next year

Federal Reserve Chairman Jerome Powell still expects inflation to ease eventually, but said Wednesday that he sees the current pressures running into 2022.

·         Powell: "Tension" between jobs, inflation is the chief challenge facing Fed

 

·         Fed's Daly sees taper bar met by year end, no rate hike in 2022

·         Fed's Harker says it will soon be time to begin tapering bond purchases

 

·         Boston Fed's first look at digital U.S. dollar nearly done, official says

 

·         BoE's Bailey sees UK economy taking longer to regain pre-pandemic size

Bank of England Governor Andrew Bailey said on Wednesday that he expected Britain’s economy to recover its pre-pandemic level of output early next year, a little later than the central bank had predicted last month.

His new forecast reflects signs that Britain’s economic recovery has slowed by more than expected following its initial rebound from the last COVID-19 lockdown.

 

·         BOJ's Kuroda projects economic recovery to pre-COVID levels by early 2022

Japan's economy will continue to recover and could reach levels seen before the coronavirus pandemic by the end of this year or early in 2022, Bank of Japan Governor Haruhiko Kuroda said on Thursday.

With consumption weak and inflation well below its 2% target, however, the BOJ will maintain its massive stimulus regardless of the new government's policies, Kuroda said.

 

·         Global supply disruptions could still get worse, central bankers warn

Supply constraints thwarting global economic growth could still get worse, keeping inflation elevated longer, even if the current spike in prices is still likely to remain temporary, the world’s top central bankers warned on Wednesday.

·         Japan's Aso hails 'good guy' Kishida as new LDP leader

Japanese Finance Minister Taro Aso on Wednesday hailed the election of former foreign minister Fumio Kishida as the new leader of the ruling Liberal Democratic Party, calling him a “good guy” with experience in domestic and foreign affairs.

 

·         G7 finance ministers make some progress on tax deal, UK says

 

·         Britons turn more pessimistic about outlook for economy

 

·         S.Korea Aug factory output unexpectedly declines from July

Industrial production last month fell by a seasonally adjusted 0.7%, missing a 0.5% gain forecast in a Reuters survey and following 0.2% growth in July.

 

·         U.S., Mexico to hold high-level security talks on Oct 8

 

·         N.Korea's Kim offers to restore inter-Korean hotline, slams U.S. 'hostile policy'

 

·         Natural gas drops 7%, sharpest decline since January following big run-up on supply concerns

 

·         COVID-19 UPDATES:

 

·         Australia's Victoria reports record new COVID-19 cases

 

Reference: CNBC, Reuters, Worldometers