Traders are also reacting to a rising U.S. Dollar which is reducing foreign demand for the dollar-denominated asset and steady U.S. Treasury yields which are increasing the opportunity cost of holding the non-yielding asset.
At 14:01 GMT, December Comex gold is trading $1773.80, down $4.40 or -0.25%.
Traders Bracing for Outcome of Fed Meeting, Powell’s Remarks
Gold traders are holding prices relatively steady as they braced for the outcome of a two-day U.S. Federal Reserve monetary policy meeting, new economic projections and remarks from Fed Chief Jerome Powell on reducing the central bank’s massive stimulus support that has been in place since the start of the pandemic.
The decision by the Federal Open Market Committee (FOMC) will determine the near-term direction of gold prices with investors already pricing in an increasingly hawkish outcome.
The recent price action suggests investors are pretty sure the Fed will say they discussed how to begin tapering its massive bond purchases before the end of the year. If the Fed is going to be specific about when it will begin the tapering process then look for it to name November as the month.
Gold Prices at Risk
The danger for gold prices could be in the “dot plot” forecasts from Fed members which might show the median timing of the first rate hike has shifted to 2022 from 2023.
Back in June, gold prices plunged over $100 in two days and posted their worst week since March 2020 after the Federal Reserve’s hawkish turn lifted the dollar and dented gold’s investment appeal. Following its June 16 policy meeting, the Fed signaled it would be considering whether to taper its asset purchase program meeting by meeting and brought forward projections for the first post-pandemic interest rate hikes into 2023.
Gold traders have probably priced in the start of tapering before the end of the year, but they have not fully-priced the moving forward of the first interest rate hike and any other rate hikes to follow.
Powell has said that slowing down the Fed’s asset purchases should not be seen as a signal about when rate hikes may come. However, hints about tapering and the newest edition of the central bank’s forecasts could change market expectations around interest rates.
Look for gold prices to fall sharply if the Fed’s “dot plots” show policymakers expect interest rates to move higher sooner than previously projected.
Holding the forecast for the first rate hike to 2023 could produce a mildly bullish response from gold investors.