Daily Gold Update

Source:Bill Musgrave, American Gold Exchange

AustinGold futures plunged 4.7% to close at a seven-week low under $1,775 as a hawkish policy statement from the Federal Reserve strongly boosted the dollar, triggering the metal's biggest one-day percentage drop this year.

At the end of its meeting on monetary policy, Fed officials Wednesday accelerated the timeline for removing the punch bowl from the easy-money party. Responding to sharply higher inflation and an improving economic picture, the majority of committee members are now forecasting interest rates to rise twice in 2023. Previous forward guidance held no rate changes until 2024.

In addition, Fed Chair Jerome Powell said the committee has started "talking about talking about" tapering the $120 billion-per-month bond-buying program known as quantitative easing.

The dollar rallied aggressively for a second day, adding 0.9% to yesterday's 1% gain to reach its highest level since mid-April. Higher interest rates boost the dollar by making it more attractive for Forex investors seeking higher yield. A stronger dollar, in turn, weighs on gold and other commodities priced in for global trade by making them more expensive overseas.

Technical trading added fuel the buck's rise and gold's tumble. Goldman Sachs and Deutsche Bank reversed earlier calls to short the dollar, helping to drive the price up as traders covered shorts. Simultaneously, the erosion in the gold price became a landslide as stop-loss orders were triggered in automatic trading, driving prices much lower.

Higher inflation is still expected to buoy gold in the longer term. And the buck's recent rally may well be short lived, which would also lift the metal. In a note to clients today, Goldman Sachs forecast a broadly lower dollar in the medium term as other major economies catch up to the US in recovering from Covid.

The other precious metals were also sharply lower, with silver losing 7% while platinum and palladium fell 7.6% and 11%, respectively.

At the Comex close: August delivery, gold plunged $86.60 to $1,774.80; July silver lost $1.96 to $25.86; July platinum shed $86.70 to $1,055.20; and September palladium plummeted $324.60 to $2,512.20 an ounce.