Investors generally judged yesterday’s announcement from the Fed Open Market Committee (FOMC) to be hawkish, as the central bank pledged to begin the process of reducing its $4.5-trillion balance sheet. There was no movement on interest rates at the September meeting, however.
The resulting market action was a bit of a sell-off for the precious metals, since the Fed decision signals greater confidence in the economy going forward. Spot gold fell to $1,290/oz when markets opened this morning, the first time the yellow metal has been below $1,300 this month. Spot silver lost 1.6% to trade at $16.85/oz. Platinum also tumbled 1.3% to $930/oz but palladium mostly held its ground at $905/oz, significantly tightening the spread between the two sister metals.
Here’s a glance at how markets closed on Wednesday:
Gold: $1,300.50/oz (-$10.20, -0.78%)
Silver: $17.13/oz (-14¢, -0.84%)
Platinum: $942/oz (-$9, -0.95%)
Palladium: $909/oz (+$8, +0.89%)
Dow Jones: 22,412.59 (+41.79, +0.19%)
S&P 500: 2,508.24 (+1.59, +0.06%)
Nasdaq: 6,456.04 (-5.28, -0.08%)
DXY: 92.43 (+0.58, +0.64%)
WTI crude: $50.29/bbl (+93¢, +1.88%)
The big news yesterday had less to do with the fed funds rate (the benchmark interest rate) and instead focused on the official unwinding of stimulus from the Federal Reserve. Beginning in October, the central bank will gradually start selling its huge portfolio of Treasurys and mortgage securities that were purchased during the radical experiment known as quantitative easing (QE). In some cases, the Fed can simply let the bonds mature and roll off the books. Each quarter, it plans to increase the amount of bonds and securities it cuts from its balance sheet. Of course, it’s worth noting that the Fed has telegraphed its plans before and deviated from the projected path.
In response to the announcement, investors quickly piled into riskier assets as they took the Fed’s plan to be sufficiently hawkish. This took some of the luster off the precious metals market for the time being, but the same could be said of the U.S. stock market. (Equities generally rise when they expect stimulus and accommodation from central banks, so removing stimulus measures can naturally be anticipated to have the opposite effect.) Wall St opened as much as 0.4% in negative territory on Thursday morning.
In other news from central banks, the Bank of Japan kept its monetary policy unchanged at its meeting overnight, although the BOJ did signal it may need to—somehow—expand its own stimulus measures in the near future. This lifted the Nikkei 225 slightly, as the Tokyo-based index closed about 0.2% higher. The yen, however, fell back to ¥112 per dollar. The USD was slightly lower (-0.20%) on the DXY index this morning, but the greenback has actually advanced 1% in the past two weeks alone.
The top story on Thursday in terms of new economic data was a surprisingly strong unemployment report from the Department of Labor. First-time jobless claims fell to 259,000 last week in spite of the disruption caused by Hurricane Harvey in Texas and Hurricane Irma in Florida. The data was far better than expected, although the readings are expected to remain somewhat volatile until the economic impact of these hurricanes is completely sorted out.
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