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Metals Stocks: Gold futures settle lower, but move up after Fed minutes

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Gold futures settled lower on Wednesday, then moved up after minutes from the Federal Reserve’s late-July meeting suggest the central bank’s rollback of crisis-era accommodations could begin later this year.

Gold increased slightly as the Fed “suggested a tapering of bond purchases later this year, though rate hikes are still not expected in the near future,” Jason Teed, co-portfolio manager of the Gold Bullion Strategy Fund
QGLDX,
-0.14%
,
told MarketWatch.

“Tapering would reduce the supply of money on the economy, which is typically supportive of the metal,” he said. “It appears that the markets may have thought recent selling may be overdone, and the release of minutes by the Fed suggest that some support for gold will remain.”

Most of the top Fed officials said last month that they thought it would be appropriate to start reducing the pace of its asset purchases this year, according to minutes of their policy meeting released on Wednesday.

The minutes show, however, that there were sharp divisions on the tapering questions. Several Fed officials said they thought a reduction in the pace of purchases should start next year.

Reading between the lines, “the majority of U.S. central bankers appear to be comfortable starting to reduce QE this year as long as there are no major downside shocks to the economy,” said Matthew Weller, global head of research at FOREX.com and City Index.

“There were plenty of reasons to believe the minutes wouldn’t be a massive market mover, and that’s exactly what we’ve seen so far,” he said in emailed commentary. “The market initially read the minutes as more dovish, leading to a quick uptick in indices and gold, while Treasury yields and the U.S. dollar dipped” but some of those moves were quickly reversed, with most major markets “trading within spitting distance of their pre-minutes levels.”

Meanwhile, in a Barron’s Live interview with MarketWatch, St. Louis Fed President James Bullard said Wednesday that the U.S. economy won’t be derailed by the spreading delta variant of the coronavirus that causes COVID-19. Bullard said the economy has already made “substantial” progress — the benchmark for tapering the central bank’s $120 billion a month in asset purchases.

December gold
GCZ21,
+0.08%

GC00,
+0.08%

 fell $3.40, or 0.2%, to settle at $1,784.40 an ounce following a 0.1% decline on Tuesday. Prices for the most-active contract settled Monday at their highest since early August.

In electronic trading shortly after the Fed minutes’ release, gold futures moved up to trade at $1,789.20 an ounce.

Ahead of the Jackson Hole Symposium in late August, Lukman Otunuga, manager of market analysis at FXTM, said gold remains supported by “unease over the spread of the delta variant, concerns around the strength of China’s recovery and geopolitical tensions in Afghanistan.”

An announcement on tapering is expected at either next week’s symposium on monetary policy in Jackson Hole, Wyoming, or the Fed’s September meeting.

Read: Fed’s Powell uncertain about what the rise of COVID delta variant means for the economy

“It’s clear that most members think the Fed reached its inflation target of ‘inflation moderately above 2 percent for some time’,” said Marshall Gittler, head of investment research at BDSwiss, in a note Wednesday, ahead of the Fed minutes. “The deciding factor then is the labor market.”

Gittler said it appears that both Fed doves and hawks “want to see the autumn employment data, particularly around school reopenings, before beginning the process of tapering.”

Given that the Fed won’t have the September employment report available at its Sept. 22 meeting, “the best it could do then would be to put the market at notice that a decision is likely to be imminent at upcoming meetings’”, he said. He believes the Nov. 3rd meeting would be the earliest the Fed could announce the start of tapering.

Precious metals earlier briefly took a leg higher after a reading of U.S. housing starts for July declined by 7% after increasing by 3.5% in the prior month, according to data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Meanwhile, building permits rose 2.6% in July, compared with a decline of 5.3% in June.

Gold and silver have enjoyed buying amid uncertainty about the spread of the delta variant of the coronavirus. Weak data also has offered some support for recent buying, including a Tuesday report that revealed that Americans cut spending at retail stores in July, with retail sales down 1.1% or more than the 0.3% decline forecast by economists polled by The Wall Street Journal.

Among other metals, silver for September delivery
SIU21,
-0.63%

lost 24 cents or 1%, to settle at $23.42 an ounce, following a nearly 0.6% decline on Tuesday.

September copper
HGU21,
-1.95%

shed 2% to $4.12 a pound. October platinum
PLV21,
+0.34%

tacked on 0.3% at $996.40 an ounce, while September palladium
PAU21,
-2.85%

lost 2.9% to $2,423.30 an ounce.

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