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01 Dec, Thursday
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Bull Trader USA

Metals Stocks: Gold prices rally to a more than 3-week high as U.S. dollar slips in wake of Fed decision

Gold futures rallied on Thursday as the U.S. dollar slipped, helping lift prices to their highest finish in more than three weeks, a day after the Federal Reserve’s policy update.

The rise for bullion came despite the Fed announcing plans to more aggressively slow its bond purchases and projecting three interest-rake hikes next year.

“With the FOMC only fractionally more hawkish than the markets had been expecting, gold took the results in its stride,” said Rhona O’Connell, head of market analysis, EMEA and Asia regions at StoneX, in a note. “After a quick dip on the release, accompanied by a short spike in the dollar, gold started improving and the dollar resumed its downward path.” 

Arguably, “the dollar has already been pricing in at least two rate hikes next year and that some emerging market economies will benefit from commodity price improvements as well as economic recovery,” she said. “Tie this in with the search for yield and diversification, coupled with the possibility of an improvement in the euro, and a case can be made for the dollar’s bull run to start tapering off.”

Some analysts speculated that gold might be getting support from hedging the economic risks involved with the spread of the omicron variant of the coronavirus that causes COVID-19.

Rising cases due to the omicron variant “persuaded investors to take some exposure to the precious metal until the coronavirus situation cools down,” wrote Naeem Aslam, chief market analyst at AvaTrade, in a daily research note.

Read: Why 2022 will be a ‘more challenging’ year for commodities such as oil and gold

February gold GCG22, +1.85% GC00, +1.85% rose $33.70, or 1.9%, to settle at $1,798.20 an ounce after touching an intraday high of $1,800.60. The settlement was the highest for a most-active contract since Nov. 22, according to FactSet data. Wednesday’s finish was the lowest since Dec. 2.

March silver SIH22, +4.27% rose 94 cents, or 4.4%, to settle Thursday at $22.485 an ounce, following a 1.7% decline a day ago.

Despite the hawkish Fed, the U.S. dollar index dipped and gold prices edged higher, said Aslam. “This is odd because when a central bank acts aggressively, the dollar index usually climbs as higher interest rates push the demand for that currency higher. However, this was not the case after yesterday’s FOMC meeting,” Aslam said.

The dollar, as measured by the ICE U.S. dollar index DXY, -0.47% was trading 0.5% lower, while the 10-year Treasury yield TMUBMUSD10Y, 1.430% was around 1.426%, down from 1.46% on Wednesday.

In other central bank news Thursday, the Bank of England surprised the market with a 15 basis-point hike to its benchmark interest rate to 0.25%. The European Central Bank, meanwhile, left key interest rates unchanged and reiterated that its Pandemic Emergency Purchase Programme will end in March as planned.

“Central banks are finally getting serious on inflation,” Chintan Karnani, director of research at Insignia Consultants, told Marketwatch. “They will take measures to bring down inflation.”

The Bank of England raising interest rates is “just a precursor” for other central banks to follow the same path, he said. “Gold is getting support from central banks’ serious focus on taming inflation.”

The omicron virus is spreading faster than expected globally and that will also support the gold price, he said.  Technical trading and omicron will dictate the gold price for the next two weeks, he said, and tensions between Russia and Ukraine, if that escalates into a war-like situation, “can be the ‘X-factor’ for gold bulls.”

In other Comex trading Wednesday, March copper HGH22, +2.87% tacked on 2.9% to $4.305 a pound. January platinum PLF22, +4.05% rose 3.9% to $928.90 an ounce and March palladium PAH22, +11.21% settled at $1,722.80 an ounce, up 11% after posting declines in each of the last five sessions.

The palladium market bounded “aggressively” as if sub0$1,600 pricing is “too cheap,” analysts at Zaner wrote in Thursday’s note. Still, “while there have been signs that the chip shortage is slowly resolving and that could lead to increased demand from the auto catalyst sector, the market lacks credible evidence of that development.”

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