Fed Signals It Will Stay the Course, Resulting in Declining Precious Metals

In a statement released following the conclusion of this month’s FOMC meeting, the Fed announced that Fed funds would remain unchanged. “In view of realized and expected labor market conditions and inflation, the committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent.”

However, they also signaled the need for further interest rate hikes.  “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric two percent objective over the medium term.”

Market participants seemed to position themselves well ahead of the report. Prior to the conclusion of this month’s FOMC meeting, gold pricing was under pressure with gold futures trading approximately six dollars lower. Also evident was a higher U.S. dollar as well as higher Treasury yields.

As of 3:30 PM Eastern standard time, gold futures are trading at the low of the day. The most active December contract is currently fixed at $1225.90, which is a decline of $7.70 on the day. Although the U.S. dollar is trading higher, gains are marginal, with the dollar index currently up 18 points and fixed at 94.46.

Spot gold is currently down $6.60, with only a fractional portion of that decline directly related to dollar strength. According to the Kitco Gold Index (KGX), today’s decline is dominated by selling pressure which is currently accounting for -$5.10, and the remaining -$1.50 is directly attributable to dollar strength.

Although there were no major surprises in terms of the current monetary policy of the federal reserve, the current course of gradual rate increases will continue to weigh heavily upon the precious metals complex. The net result today is a 1% decline in silver pricing, a 2% decline in Palladium futures, and a 3% decline in platinum futures.

Gold futures have the smallest decline of the precious metals complex, a 0.73% decline on the day. All things being equal, it seems likely that gold will continue to trade under pressure.

Wishing you as always, good trading,