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Fed sets out a plan and gold agrees

17 December 2021

Gold hugs key level

Friday 17 December 2021

In this week's market report:
  • Troops on the border nudge gold higher
  • Reserve Bank of Australia remains dovish
  • Fed sets out a plan and gold agrees
  • Central bank policies diverge
  • Inside the office this week
  • Before you go: Rick Rule and the precious metal super cycle
Shae Russell
Shae Russell,
Group Communications Manager

Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

(Click to enlarge)
Source: Trading View
Gold likes the Fed’s plan: Gold is up 1.45% for the week, though the majority of those gains were made overnight, where the yellow climbed US$23 (1.30%) per ounce.

Last night explained: Gold’s leap higher overnight was a surprise, as US equities rosethe US dollar dropped as did US 10yr Treasury yields, falling to 1.40%. Some media outlets initially attributed gold’s rally to the Bank of England increasing rates (more below) but I have it on good authority that ‘gold doesn’t look at what sterling does’.
Instead, gold’s rally appears to come from increasing geopolitical tensions. As noted by Bloomberg this morning:
‘The Biden administration is pushing European Union allies to finalize a broad package of sanctions against Russian banks and energy companies that could be imposed jointly with the U.S. if the Kremlin attacked Ukraine, according to people familiar with the discussions. 
‘Adding to the urgency is the fact that Vladimir Putin has shown no sign of pulling back the thousands of troops he’s amassed near his neighbour’s borders. The U.S. believes agreeing on specific sanctions options would send a firm signal to the Russian president.’ 
As for the other precious metals: Silver tagged along with gold’s rally, but neither platinum or palladium rallied this week:  
  • Silver up 2.38% to US$22.47
  • Platinum has been flat for the week, eking at small 0.22% gain to US$931, though Pt is resting on support.
  • Palladium down 3.45% to settle at US$1,746. Pd reached a low of US$1,529 per ounce this week, which may a reason why it’s been one of our biggest sellers this week.
This move was good for the Bulls: A strong move in gold up to US$1,800 is positive. It’s above the curse of 1790.

Bears, the rally doesn’t count yet: This rally doesn’t count yet until gold gets up and over US$1,811.

But, back to the Bulls: The follow up here is, there is less resistance now at US$1,811 then there has been in the past. Meaning, it shouldn’t take too much to nudge gold through here again.

Australian dollar gold price lifts too: Gold in Australian dollars has moved 1% higher to AU$2,510 at the time of writing. Our currency has been fairly subdued this week — especially compared to recent weeks — with the Aussie dollar up 0.5% to 71.85 US cents.
ABC Bullion Minted tablets ramping up

Reserve Bank of Australia remains dovish

Philip Lowe, Governor of the Reserve Bank of Australia (RBA) remains unapologetically dovish as Western central banking polices diverge globally.

The Australian market was surprised by strong November jobs data, adding 366,000 new jobs and bringing our unemployment rate down to 4.6%.

Nonetheless Lowe is still reluctant to end our massive AU$350 billion bond buying program. While many economists expect it to end in February 2022, Lowe has said that he is open to it running to May, or even longer if needed.

Making it clear that ‘no decision’ had been made on ending our own stimulus, Lowe doubled down at a private function saying he expects the cash rate to remain at 0.1% until 2023: ‘The condition for an increase in the cash rate will not be met next year. It is likely to take time for that condition to be met and the board is prepared to be patient.’

Fed sets out a plan and gold agrees

The final Federal Open Markets Committee (FOMC) for 2021 wrapped up on Thursday morning our time. Just like the November tapering was baked in, the markets were largely expecting the Fed to confirm it would now happen quicker, with CNBC writing:
‘The Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The Fed was tapering by $15 billion a month in November, doubled that in December, then will accelerate the reduction further come 2022.’
What was unexpected however, was the Fed outlining three potential rate increases in 2022. Tapering is now tipped to end in the early 2022 (March or April), with rate hikes to follow thereafter, plus two more hikes in 2024.

Interestingly, gold has seen a positive reaction from the Fed’s new plan. The yellow metal abruptly fell to US$1,753 when the FOMC meeting ended, however it quickly reversed and marched back into the US$1,770s.

Central bank policies diverge

The Bank of England was the first of the G7 members to raise rates over night, lifting the base rate from 0.1% to 0.25%. Much like the Fed, the BoE have their own inflation concerns as the local labour market tightens and prices increase.

This contrasts with the European Central Bank, which is continuing with their stimulus programs and the Fed still only in the tapering phase. The Bank of Japan meeting is today, but no announcement had come through at the time of writing.

Smaller central banks, such as Norges Bank (Norway) increased rates again this month whereas the Swiss National Bank maintained dovish polices and have kept rates at -0.75%

Inside our office this week…

The things you learn when you work inside the bullion business. It’s not just major shopping centres that are busy this time of year, so are our offices! I’m hearing reports from all corners of

Australia how frantic our branches are as people come in and buy precious metals for Christmas.

This week our 500g ABC Bullion Silver Cast Bars are proving to be extremely popular. However, our dispatch department says palladium is also flying out the door. Look, I would be quite happy if either of these precious metals ended up under my tree...

I’m not surprised to see precious metals investors picking up palladium. With the price falling to a blink-and-you’ll-miss it 18-month low earlier this week, many investors have been keen to take advantage of this price dip. If you’re new to investing in palladium (or platinum,) click here to see why demand is rising for this precious metal.

Before you go…

Today, commodities investing legend Rick Rule and I discuss why it’s more important than ever for investors to treat gold and silver as savings and how the unique circumstances that benefited US bonds and low interest rates are going to end up creating a ‘precious metals super cycle’.

Plus, Rick shares his thesis on the energy transition, what commodities are needed and how the real gold squeeze hasn’t even begun yet. Click below to watch now.

Until next time,
Shae Russell
Group Communications Manager, 
For ABC Bullion

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Give the timeless gift of investment bullion. On-line purchases can be collected in-store until 1pm, 24th December 2021.

We are unable to guarantee pre-Christmas delivery for purchases made after the 16th December and they may arrive after the 10th January 2022.- Buy Now
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