Gold Retreats As Traders Digest Fed’s Statements

Gold was lower in midday markets on Wall Street, losing some 1.4% at $1,795. The price of gold fell from a high of $1,822.18 and had reached a low of $1,791.86. Equity markets initially bounced in the aftermath of the FOMC driven sell-off yesterday.

However, they started to slide again and the US dollar edged higher, hitting a one-and-a-half-year high, weighing on the precious metal. ‘The market ran short of optimists as it weighed up the pros and cons of a Fed belatedly determined to tame rampant inflation.

At the time of writing, the Dow Jones Industrial Average is down 0.25% and has marked a low of 34,034.08 so far, giving up earlier gains of as much as 1.4%. The Nasdaq Composite fell 0.5% to 14,002.58 after trading in the green at market open. The S&P 500 is down 0.37% and hit a low of 4,315.20 after trading up 1.2% earlier in the session. The yield on the US 10-yr note fell to 1.783% and is down 4%.

Powered by bets the US Federal Reserve could deliver faster and larger interest rate hikes in the months ahead, the greenback holds near the highest levels since July 2020 against other major currencies on Thursday, as measured by the DXY index. At the time of writing, it is trading 0.7% up near 97.20 as money markets move in to price in as many as five quarter-point increases by year-end.

The US dollar was also supported on the fourth-quarter Gross Domestic Product that rose 6.9% versus expectations of a 5.5% rise. The GDP price index also beat expectations, rising 6.9%, while Q4 core inflation rose to 4.9% vs 4.6%. Personal consumption expenditures rose 3.3% vs 2.0% in Q3.

‘The market has already priced-in a 25bp hike in March but the possibility of a 50bp hike is also seeping into market pricing. Given global macro’s elevated sensitivity to liquidity, evidence that quantitative tightening might be more impactful for asset prices suggests that this axis could be particularly relevant.