There was a dramatic $25-per-ounce swing for the gold price on Wednesday after the FOMC expressly put December on the table for a possible rate hike. Before the Fed announcement, spot gold was up about $15 at $1,180/oz; following the hawkish signals given by the FOMC, prices sank $10 into the red, settling near $1,155/oz. This is where gold traded for the rest of the day.
On Thursday morning, the gold price was steady just above $1,153 per ounce, while the rest of the precious metals sank a bit further.
Silver lost more than 25¢, or almost 1.75%, to fall to $15.75 per ounce. Platinum fell 0.7% to just below $1,000/oz again, while palladium slid twice as far in terms of percentage, losing $10 to about $675/oz. Meanwhile, the dollar hit a 2-month high on the DXY, rising to 97.75 before slipping back to 97.3 by Thursday afternoon.
In the day and a half preceding the Fed announcement, gold had been trending higher on the expectation that the Federal Reserve is still a ways out on raising interest rates. Right around the time the statement was released, spot gold was $1,179/oz. 3 minutes later at 2:03 pm EST, it had already fallen to $1,168/oz, and by 2:45 pm, it had sunk to $1,153/oz. This is around where the price stayed for the rest of the trading day, as it appears new support is forming at the $1,155 level.
In contrast to the spot price’s acute reaction to the Fed announcement, the gold futures market closes right at 2 pm each day. This meant that the COMEX paper gold price had some catching up to do; it closed yesterday at the $1,179/oz level before there was any reaction to the Fed.
Pushing back against market expectations, the FOMC took a much more hawkish stance toward when its next rate hike might occur than was indicated at the committee’s September meeting. The Fed statement directly put December on everyone’s radar as the potential timing for the first interest rate increase in a decade. The chances that traders are giving for a December rate hike are now up to about a 50-50 shot. This is holding down gold as well as government bonds, as Treasury yields jumped by the most since March following the FOMC statement.
It makes sense that everyone is selling Treasurys if they think that rates are possibly going up in December, which will also buoy bond yields. The benchmark 10-year note yield jumped to 2.13% after holding just above 2% recently.
The markets reacted very little to Thursday’s Q3 GDP numbers in the U.S. coming in at 1.5% growth. This was only slightly below expectations of 1.6%, but still a far cry from the second quarter when GDP grew by 3.9%.
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