Gold Prices Benefit From Fed Tightening

• Fed Policy Decision Boosts Gold
• Yield Stabilization Supports Move Upward
• Precious Metals Looking for Positive Year-End

In commodities news, gold prices received a timely boost during the week with news that the Fed, as had been widely anticipated, will move to tighten its economic policy moving into next year. This gave a fresh push to gold prices as the precious metal continued a three-day rally. Furthering the cause to stay near $1800 is the fact that Treasury yields have stabilized as the Dollar sells off slightly from its high point. With no major economic events on the calendar, those trading gold and the other precious metals will be hopeful that the positive momentum continues. 

Hawkish Fed Positive for Gold

Though some analysts have recently questioned the position of gold as a modern-day safe haven, it still does seem to be the case. Periods of uncertainty invariably bring traders back to buying gold and other precious metals as a store of value. This week, there was slight uncertainty leading into the two-day Fed policy meeting, though most in the market fairly presumed the Fed would tighten policy. This caution held gold prices higher through the early part of the week. 

The news that Jerome Powell and US policymakers would indeed be accelerating the reduction of bond purchases with interest rate hikes to come in 2022 was in fact met by a relieved economy with mounting inflationary pressures. This has created a weakening of the Dollar which has made gold cheaper for holders of other currencies. This combination of events has seen the metal enjoy its best week of late.

Yields Stabilize to Assist Move Higher 

Another factor that has helped bring a positive week to the gold market, is the fact that US treasury yields have stabilized given the certainty that the policy movements have provided. While the overall market mood remains cautious, this has benefited precious metals as lower rates typically make them a more attractive investment. 

Gold closed on its first positive week in the last 5 with the futures market moving above the $1800 mark after closing for the first time since the end of November. With no other significant economic data due for release, the news, particularly around the Omicron variant, and US jobless numbers which have continued to improve, will be key drivers for the market.

Other Precious Metals Also Benefit

It is not only the gold price that has picked up following the Fed announcement. Across the board, traders have seen an improvement in precious metal prices. Silver added 0.5% yesterday to trade over $22.50 before closing slightly lower while palladium added more than 3%.

Whilst still being well off its high point of the year, Palladium has battled back strongly of late. This market, in particular, is heavily reliant on auto production which has suffered in 2021 due to the chip shortage among other factors. A bounce-back toward the end of the year could fuel a higher move in 2022.