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Updated 18:08 CET 04/12/21

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Gold price on the rise as Fed ramp up talk of tapering


19 Aug 2021, 12:05 p.m. Michael Pinson

After a strong week of trading, the gold price has seen a small rise following the release of the minutes from the latest Federal Reserve committee meeting in the US. The Fed confirmed that its members are moving towards tapering the huge quantitative easing (money printing) program brought in to combat the effects of the global pandemic on the US economy.

Gold has recovered well since the “flash crash” last Monday that saw it fall as low as $1,691.24 per ounce. The metal has bounced back by more than 5% to climb back to the current price at $1,787 per ounce. Having reached as high as $1,795 earlier this week, gold hit resistance as it approached $1,800 once more, and so far, has failed to push through this key level.

190821 USD Chart
Following a slew of data in the past few months that suggests the US economy is recovering from last years restrictions, and a surge in inflation due to the trillions being pumped into it, many have been calling for the Fed to begin tapering the program. Some of the Fed’s own members have been more vocal about the need to taper in recent weeks, and appear to now be swaying the committee as a whole.

As the minutes showed: “Some participants suggested that it would be prudent for the Committee to prepare for starting to reduce its pace of asset purchases relatively soon, in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated”.

The Fed’s September meeting will likely have some sort of confirmation of the tapering schedule, which is expected to begin this year still. The pace at which the asset purchases are reduced is still up for debate however. The minutes also showed that although there are plenty of signs of strength in the US economy, it is not a clear-cut recovery by any means.

Employment remains below pre-pandemic levels, the vaccination program has shown signs of slowing down, and a rise in delta variant cases all leave the US economy at risk of being unable to maintain growth in the months ahead.

Stock markets have reacted negatively to the news, with global indexes dropping as trading began today. At the time of writing the FTSE 100 is down 2.1%, the DAX index is down 1.65%, and the CAC index is down 2.5%. Futures for US indexes also point to a drop when Wall Street begins trading later today.

After last week’s bounce back, gold has been stuck bumping against the $1,800 per ounce mark, but has risen slightly this morning as investors turn away from stocks and into gold, reaching $1,787 so far. In Sterling gold has risen this morning to £1,309 per ounce at its peak, and €1,531.92 in Euros.

Silver has seen a similar rise this morning, but remains down on recent highs. Despite the high demand from investors, industrial demand is likely being stymied by other supply shortages. Used predominantly in electronics, items not being built due to the semi-conductor shortage is likely having a knock-on effect for silver as well.

Any mention of tapering in recent weeks has led to the gold price falling, with markets pricing in interest rate rises and a reduction in inflation to gold’s detriment. As the event approaches however it seems the concerns over inflation, and move out of riskier assets are so far supporting gold as one would expect. $1,800 per ounce will remain a key resistance point, and if gold can breakout past this point it could see some further quick gains.

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