Gold Plunges Deep Ahead of Fed’s Meeting
ZFX – Gold is starting to be weighed down by the most important Fed meeting of the year, as the US’ most active gold futures contract, February, was settled last Tuesday with a decline to $16 or 1% as it settles at $1,772.30 an ounce. In the last two weeks, the drop was the biggest-in-a-day, percentage-wise.
Tuesday kicked off the Federal’s Reserve’s monthly two-day meeting with Chairman Jerome Powell to give a brief on Wednesday concerning decisions taken by the Federal Open Market Committee as policy makers, as per schedule.
High expectations are put on Powell siding with Fed colleagues to hasten central bank stimulus through a $30 billion expenditure cut, rather than the previously stated $15 billion. With that in effect, $120 billion worth of bonds and assets purchase commitments can be undone in less than 90 days. This will push the first pandemic-era rate hike to happen in April.
OANDA analyst Craig Erlam said that, “the decline on Tuesday didn’t really develop much for gold. As the Fed is still on making the tapering plan to happen later in the week, any reaction from gold depends heavily on how dovish the noise will be surrounding it”.
For gold, it’s almost always a bad time whenever there are news updates concerning rate hikes. At the moment, gold traders are focused on the US inflation story, pushing gold to revert back to its traditional role as a hedge against it. Nevertheless, any strong Fed decisions in improving the situation will still negatively affect gold.
The CPI went up by 6.8% in the year up till November. This increment is the fastest growth pace since 1982, reported the Labor Department last week.
The US announced that a record 9.6% year-on-year producer prices surge was achieved last month. The announcement was made on Tuesday.
The Fed announced in March that it expects a 6.5% economic expansion for 2021 and has not changed its target despite uneven growth in the last three quarters. The problem for the central bank is inflation nearing a 40-year high as prices for nearly all goods soar from pandemic lows due to demands for higher wages and supply chain disruptions.
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