Gold Price Falls After Fed Minutes, Then Recovers

The gold price dipped Wednesday (January 3) afternoon following the publication of minutes from the latest US Federal Reserve meeting. 
The yellow metal was changing hands at about $1,315 per ounce in the hours leading up to their release at 2:00 p.m. EST, but had sunk to $1,308.20 by 2:20 p.m. EST. It recovered fairly quickly, and as of 3:30 p.m. EST was trading at the $1,315 level again.
“The lack of a more-solid lean toward the dovish end of the spectrum, and the lack of an immediately bullish response in gold, prompted investors to take profits after the yellow metal’s recent impressive gains,” Brien Lundin, editor of Gold Newsletter, told MarketWatch.

Minutes from the meeting, which was held from December 12 to 13 last year, were more hawkish than expected, and as the New York Times points out, they’ve created some uncertainty about the US economy. While Federal Open Market Committee members agree that there will be interest rate hikes next year, there is not a firm consensus on how many there will be — six members predict three, but three others are calling for four and another three anticipate two.
Some members are resistant to a high number of hikes due to the yield curve, a technical indicator that compares interest rates on the different kinds of borrowing done by the federal government. “In response to our rate hikes, the yield curve has flattened significantly, potentially signaling an increasing risk of a recession,” said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis.
The Fed hiked rates three times in 2017, and while higher interest rates usually correspond with a lower gold price, the yellow metal put on its best annual performance since 2010, rising 13 percent over the course of the year. It has also performed well so far in 2018, rallying to its highest level in over three months on Wednesday morning.
Some market watchers believe it will take a major catalyst — not interest rate activity — for the gold price to see a “sustained move higher” this year. “To get really bullish you’d have to come up with a narrative where you think other asset classes will really underperform and gold as a defensive asset becomes materially more attractive,” the Financial Times quotes Marcus Garvey of ICBC Standard Bank as saying.
If that happens, silver could benefit as well. Analysts have suggested that if gold continues to move upward, the white metal will follow, perhaps with even more impressive gains. As of 5:01 p.m. EST on Wednesday silver was sitting at $17.10 per ounce; it gained just over 7.5 percent in 2017.
Precious metal palladium is already on the rise, and reached an all-time high on Wednesday. Platinum, its sister metal, has not fared as well recently. In fact, last year palladium prices rose above platinum prices for the first time since 2001.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.