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Gold Slips but Rebounds After Fed Shifts Monetary Policy

Gold falls 1.5% but gains even more after Fed says it will double pace of tapering and keep rates unchanged. BTC jumps 5%.

SageFX - Dec, 16, 21

*Sage FX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions and Risk Disclosure for more information.

Principal Points

  • Gold prices fell 1.5% but gained 1.8% to climb over $1,780 in a dizzying market session
  • The US Federal Reserve said it will double its pace of tapering while keeping rates unchanged

What’s Moving in the Markets?

Gold prices dipped about 1.5% on Wednesday when Fed Chair Jerome Powell was giving his long-awaited remarks. In the central bank’s final meeting of 2021, Mr. Powell highlighted the Fed’s next moves that could define the course of financial markets.

While gold declined during the event, buyers jumped in when the price was hovering at a two-month low near $1,753 per troy ounce. As a result, the precious metal surged $27, or 1.8%, to finish the session at $1,782.

Early on Thursday, the price of gold has extended its upside swing and is currently trading above $1,785. This said, gold is up almost 0.5% on the day, up for a second straight day. However, its recent performance has been consolidated near current price levels.

Near the end of November, gold entered into sideways trading and market participants still cannot decide where to take the yellow metal. Long-term, however, gold has posted a 6% decline since January. Still, gold bugs remain optimistic the metal, traditionally regarded as a safe haven, will turn the trend and reach new highs.

What’s the Big Picture for Traders?

Meanwhile, Fed Chair Powell yesterday presented a rather optimistic outlook for traders and investors. In his speech, Mr. Powell said the Federal Reserve will double the pace of its stimulus withdrawal. Previously, in November and December, the Fed reduced its $120 billion in monthly support by $15 billion a month.

Starting in January, the central bank will be unwinding its asset purchases by $30 billion a month. The step is intended to help alleviate inflation pressures. On this note, US inflation for the previous month hit a 39-year high at 6.8% on an annualized basis.

Further, the Federal Reserve vowed to keep interest rates unchanged for the time being. Heading into 2022, however, Fed officials are likely to hike the interest rate at least three times. Currently, rates are kept near zero to allow easy borrowing conditions so that the US economy could rebound from the coronavirus crisis.

In that context, investors across asset classes are optimistic the outlook for growth remains bright.

What’s Happening in Crypto Markets?

Bitcoin, the world’s most valuable cryptocurrency, gained 5% after Chairman Powell delivered his comments. In more detail, the original coin sprinted to levels near $50,000 after traders cheered the updates at the event.

Ether, in the meantime, advanced 12% to top $4,000 per coin. Broadly, cryptocurrency trading picked up momentum late on Wednesday and tokens remain steady early Thursday.

What to Watch in the Markets? (EST times)

On Thursday, traders and investors will watch for rate decisions from the Bank of England (BoE) and the European Central Bank (ECB). First, the BoE delivers its news at 07:00 am. Later, the ECB publishes its interest rate at 07:45 am. The decision will be followed by a press conference with President Christine Lagarde at 08:30 am.

At the same time, the US reports its weekly jobless claims at 08:30 am. In the evening, the Bank of Japan will reveal its monetary policy statement at a press conference at 09:30 pm.

Today’s news is likely to create elevated volatility in the forex markets, presenting trading opportunities for participants.


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