Gold Is Hit Hard Even Though the Fed’s Updated Monetary Policy Came in as Expected

What was unexpected was the statement released by the Federal Reserve and how gold reacted to their updated monetary policy. Clearly, market participants had not factored in analysts’ and economists’ consensus of the outcome. The expectations were that interest rates would remain where they are, and the Federal Reserve would complete its tapering process in March and implement its first-rate hike immediately following the completion of the tapering process.

The updated monetary policy statement released by the Federal Reserve today announced its updated monetary policy, which was almost exactly what economists had anticipated. The Fed vowed to keep interest rates where they are, near zero for the time being. Although they did not specify an exact liftoff date, Chairman Powell used the word “soon” to describe the timeline for liftoff.

Many analysts interpreted the meaning of “soon” as a signal that they would begin to raise the Fed funds rate which is currently near zero in March. The new piece of information released by the Federal Reserve today was a document regarding its plan for its balance sheet reduction.

When the statement was released, gold was trading off by approximately $24 with the February contract trading around $1830. Gold prices remained steady until Chairman Powell began his press conference. However, as he began to speak the selling pressure reignited and took gold to a low of $1814.10. The same occurrence was seen in what will be the next front month, the April 2022 contract month.

Silver futures also traded lower in reaction to the FOMC meeting, basis the most active March 2022 contract. Silver lost $0.40 or 1.68% and is currently fixed at $23.49 ½.

However, there were two precious metals that continued to gain value, although based upon a completely different development. Palladium basis the most active April 2022 contract, gained $34.60 which is a net gain of 6.15% and is currently fixed at $2323.50. Platinum basis the most active April gained $5.70 or 0.56% and is currently fixed at $1031.40. Since the vast majority of palladium is mined in Russia and a large percent of platinum is also mined there. According to Provident metals, palladium is mined throughout the world but the vast majority comes from only two countries; Russia and South Africa.

Collectively these two countries account for 93% of the yearly output. Overall, Russia is responsible for mining approximately 40% of the yearly production. While the United States and Canada both mine palladium, their output is minuscule when compared to Russia.

With the increased tensions between Russia and Ukraine, there is the concern that there could be a shortage of the palladium supply needed for industrial users worldwide. Platinum is also mined in Russia, but they are only minor players when it comes to global production, with South Africa being the dominant force providing platinum used in industry.

Wishing you as always good trading and good health,

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Gary S. Wagner