Gold soars as Bank of England mimics Fed, signaling two central banks in no rush to raise rates – .

Gold soars as Bank of England mimics Fed, signaling two central banks in no rush to raise rates – .

Gold prices surged in trade when the Bank of England joined the US central bank, expressing that it was not in favor of an interest rate hike in the near future . Yesterday at President Jerome Powell’s press conference, he made it clear that they weren’t even thinking about raising rates anytime soon. As for the reaction of traders to the President’s statements that they don’t have a set timeframe to initiate take-off, I think what we saw today on gold was a belated reaction coupled with the confirmation that the Bank of England was on the same page.

At 5:50 p.m. EDT, based on gold futures, the most active December 2021 contract posted a robust gain of 1.65%, or $ 29.10. Currently, December gold futures are pegged at $ 1,793. Today’s gains reversed the decline in gold from yesterday when gold fell more than $ 20 an ounce. While it is clear that the Bank of England announcement supported the Federal Reserve’s recent announcement not to tackle interest rates, it seems more plausible that today’s gains have was a belated reaction as market participants absorbed President Powell’s comments yesterday as well as the facts contained in the statement released immediately after the FOMC meeting concluded.

Without offering a timeline, the Federal Reserve’s FOMC statement hinted at the triggers needed before interest rates were raised. Essentially, the criteria are the completion of their dual tenure, which is a maximum employment and inflation target of around 2%. Yesterday’s FOMC statement set the criteria for the Federal Reserve to announce a timetable for interest rate take-off or normalization.

“The Committee seeks to achieve a maximum employment and inflation rate of 2% over the long term. As inflation is consistently below this long-term target, the Committee will aim to achieve an inflation rate of just over 2% for a period of time so that inflation averages 2% over time and long-term inflation expectations remain firmly anchored at 2%. The Committee expects to maintain an accommodative monetary policy until these results are achieved. “

Regarding keeping interest rates (Fed funds) unchanged, the statement reads as follows:

“The Committee has decided to maintain the target range for the federal funds rate at 0-1 / 4% and expects it to be appropriate to maintain this target range until labor market conditions are reached. have reached levels consistent with the Committee’s estimates of maximum employment and inflation. has risen to 2% and is on track to moderately exceed 2% for some time. “

Finally, they announced that they would begin the downsizing process by reducing their monthly asset purchases by $ 15 billion per month. The monthly cuts of $ 15 billion would include a reduction of $ 10 billion per month in US debt and a reduction of $ 5 billion per month in mortgage-backed securities. However, there was a big caveat to this statement as the statement says;

“The Committee has decided to begin reducing the monthly pace of its net asset purchases by $ 10 billion for Treasury securities and $ 5 billion for agency mortgage-backed securities. Starting this month, the Committee will increase its holdings of treasury securities by at least $ 70 billion. per month and agency mortgage-backed securities of at least $ 35 billion per month. Beginning in December, the Committee will increase its holdings of treasury securities by at least $ 60 billion per month and agency mortgage-backed securities by at least $ 30 billion per month. The Committee believes that similar reductions in the pace of net asset purchases are likely to be appropriate each month, but it is ready to adjust the pace of purchases if the evolution of the economic outlook justifies it. “

After analyzing the FOMC statement very carefully, many analysts, including myself, find that the Federal Reserve is keeping all of its options on the table, including the level of cut, and, more importantly, not even suggesting any type. schedule for take-off until the criteria they established have been met.

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Wishing you, as always, good exchanges and good health,

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes. It is not a solicitation to effect an exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for any loss and / or damage resulting from the use of this publication.


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