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Fed tapers but gold stays firm

05 November 2021

Friday 5 November 2021

In this week's market report:

  • Tapering begins

  • ‘More than nothing, less than very much’

  • Gold in Australian dollars rallies

  • RBA give up on yield curve control

  • ABC Refinery awarded LBMA silver accreditation

Shae Russell

Shae Russell,
Group Communications Manager

Dear Investor,

US dollar gold price [XAUUSD]
Daily chart

(Click to enlarge)
Source: Trading View

The curse of 1790: Try as it might, the gold spot price continues to struggle around the US$1,790 level. Once again, the yellow metal finds itself trapped in a tight range, barely moving US$39 per ounce. Spot gold was up 0.60% for the week at the time of writing.

 

  • Silver is lower by 0.23% for the week.
  • Platinum in spite of a strong start — where Pt rallied almost US$40 per ounce on Monday — has fallen back and is currently only 1%.
  • Palladium also bust out of the gates on Monday — with a solid US$60 per ounce jump higher — however Pd has lost some ground and is now only 0.25% higher for the week, trading at US$2,006 per ounce.

 

Hawks are out: The hawkish tone from the Federal Reserve Bank, kept the US dollar strong and suppressed the rally in gold.

Tapering begins: Announced this week – though baked in by the market for months – was confirmation the Fed will begin to reduce its emergency stimulus program this November.

‘More than nothing, less than very much’: says institutional precious metals expert. The Fed has committed to reducing its US$120billion monthly bond buying program by US$15 billion each month.   

  • The Fed have stressed that will maintain the right to ‘alter’ the pace of the reduction to suit market conditions.
  • Bond purchases are expected to be completed by mid-2022.
  • Fed Chair Jerome Powell emphasised that a rate hike is ‘not imminent’ saying, ‘The focus of this meeting is on tapering asset purchases not on raising rates…We don’t think it’s time yet to raise interest rates. We think we can be patient…if a response is called for we will not hesitate.’  

Greenbacks rally on Fed comments: The US dollar index [DXY] has rallied on the back of the Fed’s commitment to start tapering, suggesting currency traders are buying the ‘transitory’ narrative of inflation. That is, price increases are largely due to the supply chain, which a last week’s US data dump supports.

Bulls, we are stuck in the middle: The good news for the bulls, is gold isn’t being pushed below US$1,770. Importantly, this keeps the yellow metal above the 50% retracement level (chart above).

  • With Fed tapering largely baked in, gold traders would be looking for signs that ‘tightening’ (rate increases) would follow the reduction in bond purchases.
  • Powell’s comments suggest there’ll be lower rates for the foreseeable future, supporting gold around here.

The markets are in ‘risk on’ mode, favouring the Bears: Stocks are up. Cryptos are up. US Treasuries are struggling as are precious metals. This tells us the markets are preferring risky assets, leaving traditional safe haven assets like bonds and gold gasping for air.

Gold in Australian dollars rallies: The Australian dollar did a sharp U-turn during the week, falling from 75 US cents to 73.88 US cents at the time of writing. This 1.5% drop lifted the Australian gold price above AU$2,400 this week, taking it near AU$2,430 – a three week high.

There’s a rather bearish article here that suggests the Aussie dollar could fall right down to 65 US cents. If the Aussie dollar does weaken, that could be good news for the Australian gold price…

 

Australian dollar gold price [XAUAUD]
Daily chart

(Click to enlarge)
Source: Trading View

RBA give up on yield curve control

The Reserve Bank of Australia (RBA) met earlier this week, keeping the cash rate at 0.1%, which was largely expected.

However, after the recent action in Australian government bonds, the RBA appear to have ended ‘yield curve control’, signalling their admission they’ll have to raise rates much sooner than 2024. With ABC News writing:

‘Markets have interpreted this move as a concession from the RBA that borrowing costs may have to rise sooner than expected.

‘NAB economists predict the first rate hike is "likely" to occur in 2023. ANZ is more specific, guessing it will happen in the "second half of 2023".

‘Economists from Commonwealth Bank and AMP Capital are even more bullish. Their forecasting shows the RBA lifting interest rates in November 2022.

‘Last week's surprisingly strong core inflation figures (2.1 per cent) led to speculation that the central bank would be forced to start winding back its COVID-era stimulus.’

 

Inside our office this week

All of ABC Bullion is buzzing this week! Though it’s not because of a new product…or Verry Elleegant’s success in winning the 2021 Lexus Melbourne Cup, proudly supplied by ABC Bullion. Dare I say it…it’s even bigger than that.

On Thursday morning, ABC Bullion announced that ABC Refinery has been appointed to the London Bullion Market Association’s (LBMA) Good Delivery List for silver. Making ABC Refinery the only independent Australasian LBMA Good Delivery Gold & Silver refiner.

ABC Refinery is the exclusive manufacturer of ABC Bullion branded products. ABC Refinery is the largest silver refiner in the southern hemisphere with an annual silver refining capacity in excess of 800 tonnes. 

ABC Refinery’s appointment to this exclusive list is a testament to its ability to refine and produce silver products to LBMA level, universally regarded as the highest international standard. Only refiners whose bars have been accredited by LBMA as meeting the exacting standards for trading on the global OTC market appear in the Good Delivery List.

The timing of this LBMA accreditation is fortuitous. Silver is in high demand by ABC Bullion’s clients, and now our clients can buy with the knowledge that their ABC Bullion silver products is now internationally recognised.

Until next time,

Shae Russell
Group Communications Manager, 
For ABC Bullion