In less than 48 hours, the price of an ounce of gold fell by more than $60, and the price of silver fell by more than 5%. The sale of precious metals was explained by the expectations of a “tightening” of the very loose monetary policy of the Federal Reserve.
It all started on Monday around 3pm Poland time. Then that information appeared US President Joe Biden nominates Jerome Powell for a second term
As Chairman of the Federal Reserve. This news gave the dollar a bit of a boost, as Powell isn’t a “pigeon” like his opponent, well-established official Lyle Brainard.
While Powell himself is also a monetary “dove” (i.e. he prefers to tolerate higher inflation and is reluctant to raise interest rates), his candidacy has remained in the marketplace as a political endorsement of the less expansionary Fed rate. Investors are speculating that the QE program will end by mid-2022 and that the FOMC will also make its first rate hike.
This contributed to a slight increase in market interest rates. The yield on US 10-year government bonds rose from 1.55% to 1.68% in two days and reached the highest level in a month. However, these values are still very low and are clearly lower than both current and projected consumer price inflation in the coming years. However, some investors may have concluded that significant increases in the federal funds rate are on the way, which could change the picture.
At the same time (although it is not known if it was for the same reason) there was a sharp decline in gold and silver futures quotations. Dollar prices of gold fell rapidly from around $1,840 an ounce. Up to $1,815/oz. After breaking this support, they fell to around $1,790 an ounce, stopping only at the 200-session moving average. in this way November highs were eliminated, Under which gold prices responded Highest CPI inflation reading in the US in 30 years.
Traditionally, silver has taken a beating more than gold, dropping from about $25 to $23.65/oz. In this way, the price of the white metal has returned to the level since the beginning of the month, giving up almost half of the gains from the October-November bullish wave.
There is still plenty of room for inflation to accelerate, and in addition, restrictions on the spread of the coronavirus are re-emerging in Europe. Ross Norman, an independent gold market analyst, commented that it is too early to scramble for gold, but it is necessary to defend this hypothesis and seek support.
It should also be noted that the situation for gold looks very different from the point of view of a long-term investor from Poland. On Friday, the price of gold expressed in Polish zloty reached the all-time nominal record of 7750 Polish zloty per ounce. Prices fell on Tuesday evening to 7,480 PLN/oz, which is still 5.5% higher than it was at the beginning of the year.
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