Gold prices held near their weakest level since mid-October on Wednesday after the U.S. Federal Reserve announced tapering of its pandemic-era stimulus measures in a widely expected move.
· The Fed will start trimming its monthly bond purchases in November with plans to end them in 2022, it said in a statement at the end of a two-day meeting.
· Spot gold was down 0.9% at $1,770.61 per ounce by 14:51 EDT, marginally paring losses after the Fed decision. It had earlier hit its lowest since Oct. 13 at $1,757.63.
· U.S. gold futures settled down 1.4% at $1,763.9.
· SPDR GOLD HOLDINGS:
· “Gold coming into the meeting was kind of preparing for the worst and that’s why it was down at around $1,758 since then,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.
“We will wait before we establish any positions on gold, on either the long or short side, and don’t expect too much movement because we do have the next jobs figure (this week).”
· The U.S. Labor Department’s employment report for October is due on Friday. Data earlier on Wednesday showed U.S. private payrolls increased more than expected in October.
· The Fed also pointed to the recovery in economic activity and employment in its statement while holding on to its belief that high inflation would prove “transitory” and likely not require a fast rise in interest rates.
· “While interest rate policy is probably number one in everybody’s minds, a very, very close second are the inflationary pressures that we have in the market at the moment,” said David Meger, director of metals trading at High Ridge Futures.
· Ultra-loose U.S. monetary policy has helped drive gold sharply higher since the financial crisis of the late 2000s, with low-interest rates cutting the opportunity cost of holding non-yielding assets and inflation fears stoking demand for a hedge.
· Silver fell 0.4% to $23.43 per ounce, platinum slid 0.7% to $1,030.94 and palladium shed 0.6% to $1,999.77.
· Dollar index dips to session low following Federal Reserve statement
The dollar fell to its lows of the day following the Federal Reserve’s policy statement, where the central bank said it will start tapering its bond purchases later this month.
The dollar index traded 0.07% lower at 94.02.
Ahead of the announcement, analysts were divided as to what the Fed’s actions would mean for the dollar.
Investors will watch closely for Chair Powell’s assessment of inflation after other central banks have signalled a more hawkish tilt in the face of rising price pressures, although whether that means higher interest rates soon is still to be seen.
· Treasury yields ended the day higher, but the move was more pronounced on longer-dated maturities that are more sensitive to inflation expectations. The yield on the benchmark 10-year Treasury note ended the session back above 1.60% for the first time in a week, while the yield on the 2-year Treasury note , a proxy for Fed interest rate expectations, ticked fractionally higher to about 0.46%.
· Fed sings the 'transitory' inflation refrain, unveils bond-buying 'taper'
The Federal Reserve threw its weight back behind the drive for a full U.S. jobs recovery on Wednesday, restating its belief that current high inflation is "expected to be transitory" and, despite risks to that view, arguing that price pressures will ease and pave the way for stronger employment and economic growth in the months to come.
END OF ASSET PURCHASES
The Fed, as widely expected, announced on Wednesday that it would begin reducing its $120 billion in monthly purchases of Treasuries and mortgage-backed securities at a pace of $15 billion per month, with a plan to end the purchases altogether in mid-2022.
'HEDGING THEIR BETS'
The Fed instructed its market agents at the New York Fed to begin executing the reduced bond purchases in the middle of this month, but only laid out that plan for November and December. Starting in mid-November, it will buy $70 billion of Treasuries and $35 billion of MBS per month, a pace that will drop to $60 billion of Treasuries and $30 billion of MBS per month in mid-December.
· Fed's Powell: Could reach maximum employment by mid-2022
Federal Reserve Chair Jerome Powell on Wednesday said it is possible the U.S. job market may have improved enough by the middle of next year to be considered at "maximum employment," a key hurdle to clear for the central bank to consider increasing interest rates.
· Traders move up expectations for the Fed’s first rate hike to the summer of 2022
Traders are betting the Federal Reserve hikes rates two times in 2022, and three more times in 2023, according to Fed funds futures contracts.
· Companies add 571,000 jobs in October thanks to a big boost in hospitality hires, ADP says
· Strong U.S. services sector, private payrolls boost economy as Q4 starts
A measure of U.S. services industry activity surged to a record high in October likely as declining COVID-19 cases boosted demand, but businesses remained burdened by snarled supply chains and the resulting exorbitant prices.
The Institute for Supply Management said its non-manufacturing activity index vaulted to a reading of 66.7 last month. That was the highest since the series started in 1997 and followed a 61.9 reading in September. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.
· U.S. factory orders unexpectedly rise in September
New orders for U.S.-made goods unexpectedly rose in September, though manufacturing remains constrained by input shortages.
The Commerce Department said on Wednesday that factory orders increased 0.2% in September. Data for August was revised down to show orders rising 1.0% instead of 1.2% as previously reported. Economists polled by Reuters had forecast factory orders unchanged. Orders gained 17.6% on a year-on-year basis.
Manufacturing, which accounts for 12% of the economy, is being driven by still-strong demand for goods despite spending shifting back to services. Businesses are rebuilding depleted inventories, but shortages of labor and raw materials stemming from the COVID-19 pandemic remain challenges.
· Bank of England could be about to hike rates in the face of surging inflation
The Bank of England’s Monetary Policy Committee will meet Thursday to decide whether to pull the trigger on interest rate hikes.
Policymakers have intimated that a hike is imminent, but the nine-member MPC will need to determine whether to tighten policy this week or wait until its mid-December meeting, in light of persistent above-trend inflation and moderating growth.
Markets are uncertain about the timing, with analysts suggesting the vote is likely to be split. Some BOE policymakers, such as Governor Andrew Bailey and renowned hawk Michael Saunders, have hinted that they could back an immediate hike, while others have seemed more reluctant.
Reference: CNBC, Reuters, Worldometers
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