Gold Pares Gains as Fedspeak Raises Doubts on Further Rate Cuts
Gold pared gains as traders grew cautious on bets of further monetary easing next year after US Federal Reserve officials offered strongly opposing views Friday.
Declines in US equities, driven by a selloff in technology shares, also meant some investors may have to exit their positions in metals to cover losses elsewhere.
Federal Reserve Bank of Cleveland President Beth Hammack said she would prefer interest rates be slightly more restrictive to keep pressure on inflation, which remains too high. Kansas City Fed President Jeff Schmid made the same argument, adding that’s why he dissented against the central bank’s decision this week to lower rates.
After the policymakers’ remarks, yields on Treasury 30-year bonds rose, sending bullion lower by as much as 0.5% before paring some of the losses. The precious metal typically performs well in a lower-rate environment and investors now are looking for more certainty on the outlook.
The selloff appears broad-based across commodities markets and risk assets and is likely related to the aftermath of Wednesday’s Fed meeting, said Dan Ghali, senior commodity strategist at TD Securities.
Gold traders initially cheered the Fed’s announcement that it will begin buying $40 billion of Treasury bills per month starting Dec. 12 as it’s looking to rebuild reserves in the financial system, a move signaling more easing ahead. The Fed stopped shrinking its holdings earlier this month, a process known as quantitative tightening, amid signs reserves in the banking system were no longer abundant.
Markets are still debating whether the central bank’s reserve management purchases program is an effective form of quantitative easing, Ghali said.
Spot gold fell 0.1% to $4,274.15 an ounce as of 12:08 p.m. in New York. Silver tumbled 3.7% while palladium fell. The Bloomberg Dollar Spot Index was up 0.1%.
Source : Bloomberg.com
