Gold Eases Ahead of the Fed’s Taper Announcement

Gold bar

Gold prices fell on Wednesday as market participants waited for the Federal Reserve’s tapering announcement. Analysts expect the central bank to formally announce the tapering of its quantitative easing program today at 1400 GMT.  They predicted that the Fed would reduce its monthly bond purchases by $15 billion per month until finally ending them by the middle of next year. Investors will be looking for clues as to when the central bank would raise interest rates to control inflationary pressure.

Spot gold is currently trading at $1,781.08 per ounce as of 0801 GMT.

Hitesh Jain, the lead analyst at Yes Securities, said gold could remain under pressure in the near term. Many central banks are planning to reduce their asset purchases and normalize their monetary policy, he explained. But if stagflation occurs, that would be bullish for the yellow metal. He noted the decline in longer-term U.S. Treasury yields, which reflects concerns about a recession-inflation.

On the technical front, DailyFX senior strategist James Stanley noted the formation of a rising wedge pattern on Friday. It should be approached with bearish reversals. If the Fed takes a hawkish twist at its policy announcement today, it would further push the bearish trend potential highlighted by the formation. The yellow metal has been sensitive to the Fed moves, particularly when it comes to interest rates and Treasury yields. Stanley also noted that bullion prices remain in a pattern of longer-term digestion. It could only change if the metal breaches the support level at $1,680 or the resistance at $1,834.

His DailyFX colleague Christopher Vecchio added that November is typically a good month for the U.S. dollar. This is based on 5-year and 10-year performances. In contrast, it is a bearish month for gold. It was the worth month over a 5-year period, in which the yellow lost an average of 3.21%. November is the second-worst month for the metal over the past 10-years. The average loss was 2.7%.

Meanwhile, investors are also monitoring the policy decisions of other major central banks. Japanese policymakers reaffirmed the central bank’s commitment to its 2% inflation target. The Bank of Japan and the government agreed to keep close cooperation to achieve this goal.

In the UK, the end of the government’s furlough program failed to boost employment. Recent data also indicates that the number of new job seekers is not likely to rise sharply. The situation bolsters the case for the Bank of England to raise interest rates for the first time since the pandemic.