Gold gains as investors digest U.S. Fed tapering announcement
Gold prices recovered from early losses to trade higher on Wednesday, drawing support from a decline in the dollar after the U.S. Federal Reserve said it would end its pandemic-era stimulus measures in March.
· Spot gold rose 0.4% to $1,777.82 per ounce by 04:28 p.m. ET (2128 GMT).
· U.S. gold futures settled down 0.4% to $1,764.50.
· The U.S. central bank's move signalled its inflation target has been met and paved the way for three quarter-percentage-point interest rate increases by the end of 2022.
· "Market was looking for a hawkish move from the Fed and they got it in the dot plot," said Tai Wong, a precious metals trader based in New York.
"The market is happy that the Fed is a little spooked and doesn't want to be too far behind the curve. For gold, the key technical level is $1,750; a break substantially below that could lead to a rout in the waning days of the year."
· Gold prices had initially declined nearly 1% to a two-month low after the Fed announcement, but rebounded later as the dollar gave up early gains to trade 0.2% lower.
In its new economic projections, the Fed forecast inflation would run at 2.6% next year, compared with the 2.2% projected as of September.
Rising price pressures boost gold's appeal as some investors view it as a hedge against higher inflation.
· Fed Chair Jerome Powell also noted the U.S. economy was improving quickly, but warned he sees no near-term end to the COVID-19 pandemic.
· "The risk that the economy could fall into recession in 2023 does not seem so unreasonable. Gold's weakness could be near its end as the Fed will be on autopilot until the March policy meeting," said Edward Moya, senior market analyst at brokerage OANDA.
· SPDR CONTINUE TO SELL TWO SESSION NEARLY 5 TONNES
Overall, the holdings of SPDR decline 15.15 tonnes in this month, but this year net sell 193.04 tonnes.
· Silver rose 0.6% to $22.05 per ounce.
· Platinum eased 0.2% to $918.56.
· Palladium was down 1.3% to $1,600.44.
· Fed signals three rate hikes in the cards in 2022 as inflation fight begins
The Federal Reserve provided multiple indications Wednesday that its run of ultra-easy policy since the beginning of the Covid pandemic is coming to a close, making aggressive policy moves in response to rising inflation.
For one, the central bank said it will accelerate the reduction of its monthly bond purchases.
· Fed Chairman Jerome Powell said at a new conference on Wednesday afternoon that the labor market is not fully recovered, pointed to a sluggish rebound in labor force participation, but said it was still appropriate to roll back some of the Fed’s pandemic-era policies.
“We’re not going back to the same economy we had in February of 2020. ... The post-pandemic labor market and economy in general, and the maximum level of employment that’s consistent with price stability evolves over time,” Powell said.
· Fed's Powell: No call yet on when balance sheet would shrink
Federal Reserve Chair Jerome Powell on Wednesday said that while policymakers have decided on a swifter end to the asset purchases that have been padding its easy-money policy throughout the pandemic, they have made no decision yet on whether to start shrinking the central bank's balance sheet.
The Fed will cease adding to its nearly $8.2 trillion stash of Treasuries and mortgage-backed securities by mid-March, about three months earlier than under the initial tapering pace announced last month.
Officials have not decided what to do about the asset holdings beyond that, Powell said. Even held at a steady level starting in March, the stockpile will still provide accommodation, he said, just not "further accommodation."
· Fed funds futures price in interest rate hike by May 2022
Futures on the federal funds rate on Wednesday have fully priced in a quarter-percentage-point tightening by the Federal Reserve by May next year after the U.S. central bank doubled the pace of its monthly bond-buying tapering and flagged three interest rate increases in 2022.
For March next year, traders have factored in a 50% chance of a rate move. Fed funds futures are also betting on three hikes next year consistent with the new economic projections released by the Fed earlier on Wednesday.
· Treasury yields jump after Fed signals 3 rate hikes next year
· Dollar rises after Federal Reserve policy statement
· Shortages, inflation curb U.S. retail sales in November
U.S. retail sales increased less than expected in November, likely payback after surging in the prior month as Americans started their holiday shopping early to avoid empty shelves.
Retail sales rose 0.3% last month after surging 1.8% in October. Sales have now risen for four straight months. They increased 18.2% year-on-year in November. Economists polled by Reuters had forecast retail sales rising 0.8%. Estimates ranged from as low as being unchanged to as high as a 1.5% increase.
Several of the top U.S. retailers reported in mid-November that they had noticed an earlier start to holiday shopping. Retail sales could remain moderate in December, though higher savings and rising wages amid a tight labor market are supportive of spending.
· U.S. business inventories increase strongly in October
U.S. business inventory accumulation increased strongly in October, suggesting that restocking could again support economic growth this quarter even as motor vehicle inventories remain depressed because of shortages.
Business inventories rose 1.2% after gaining 0.8% in September, the Commerce Department said on Wednesday. Inventories are a key component of gross domestic product.
· Democrats are unlikely to pass Biden’s social spending plan this year
As Sen. Joe Manchin withholds his support, Democrats are unlikely to meet their goal of passing President Joe Biden’s Build Back Better Act this year.
The delay will have immediate implications, as the enhanced child tax credit is set to expire and Democrats could instead turn their focus to voting-rights legislation.
Failure to pass the plan could have broader long-term implications, not only on the country’s social and climate policy but also in next year’s midterm elections.
· Covid-hit Germany looks to the Mittelstand for economic recovery
Faced with surging infections and lockdowns that were wreaking havoc on Germany’s output, officials in the country moved swiftly to protect and preserve the traditional heart of its economy: the Mittelstand.
· China's factories speed up but new COVID pain hits retailers
China's factory output grew faster than expected in November, supported by stronger energy production and a moderation in sky-high materials costs, but new curbs to fight rising COVID-19 cases hit retailers in the world's second-largest economy.
Retail sales, however, rose 3.9% in November from a year earlier, below the 4.6% growth expected in the poll and October's 4.9% rise.
China's economy, which is losing steam after a solid recovery from the pandemic last year, faces multiple challenges heading into 2022, due to a property downturn and strict COVID-19 curbs that have hit consumer spending.
· China’s Xi reportedly backs Putin in Russia’s bid for security guarantees from the West
Chinese President Xi Jinping and Russian President Vladimir Putin held their second dedicated video call of the year Wednesday, amid rising international concerns about tensions on the Russia-Ukraine border.
Putin won support from Xi for his push to obtain binding security guarantees for Russia from the West, a Kremlin official said, according to Reuters.
Russia wants the United States and NATO to guarantee the military alliance will not expand further eastward or deploy weapons systems in Ukraine and other countries on Russia’s border.
Putin also called Xi his “dear friend” and said relations between the two countries had reached “an unprecedentedly high level,” according to a report of the call’s opening remarks from Russian state news agency Tass.
· The U.S. is looking at ‘additional steps’ against Myanmar’s military leaders, Blinken says
The United States is exploring additional actions against the ruling military junta in Myanmar, as the situation continues to deteriorate, the U.S. Secretary of State Antony Blinken said Wednesday.
· Oil reverses early losses despite rising supply, Omicron fears
Oil prices turned positive on Wednesday following the Federal Reserve’s statement, snapping three straight days of losses.
Brent crude futures jumped 18 cents, or 0.24%, to settle at $73.88 per barrel, after losing 69 cents on Tuesday.
U.S. West Texas Intermediate (WTI) crude futures settled 14 cents, or 0.2%, higher at $70.87 a barrel, after losing 56 cents in the previous session.
· UK reports highest number of daily Covid cases since the pandemic began
The U.K. reported a record number of new daily Covid-19 cases on Wednesday, with 78,610 in the last 24 hours.
The figure was an increase from 59,610 the day before, and it surpasses the previous high of 68,053 cases reported on Jan. 8.
· WHO expects severe omicron cases, warns against treating variant as mild disease
Reference: CNBC, Reuters, Worldometers
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