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Gold fell sharply Wednesday after a strong reading on October U.S. private-sector jobs, as traders awaited a monetary policy decision from the Federal Reserve due out not long after futures prices for the precious metal settle for the session.
“The ADP number was as solid as it can be and this has triggered a sell off for the gold prices,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update.
Privately run U.S. businesses created a fairly strong 571,000 new jobs in October, an ADP survey found. The increase in hiring was larger than expected. Economists surveyed by The Wall Street Journal had forecast a 395,000 gain.
“The biggest thing now is the Fed decision which” due later Wednesday, said Aslam. If the Fed announces a decision to taper asset purchases by “anything above $15 billion, [that] would mean that the Fed is sending a hawkish message — and it would also mean that a rate hike is likely to take place sooner than earlier.”
Economists say the central bank has signaled it will announce that it intends to slow the purchases at a pace of $15 billion per month — $10 billion in Treasurys and $5 billion in MBS — starting mid-month.
Against that backdrop, gold for December delivery
GC00,
GCZ21,
was down $22.10, or 1.2%, at $1,767.30 an ounce on Comex. December silver
SI00,
SIZ21,
fell 37.7 cents, or 1.6%, at $23.13 an ounce.
“If the Fed turns out to be more aggressive in tapering, this would be negative for stocks and gold, but positive for the dollar,” said Fawad Razaqzada, market analyst at ThinkMarkets, in a note.
Tapering quantitative easing by $20 billion to $30 billion would “come as a hawkish surprise, not only because it would mean the purchases programme would end quicker, but it would also boost expectations that the start of rate rises could be sooner than expected,” he explained.
Under that scenario, U.S. bonds “should slump, causing yields to rise, sending gold lower along with growth stocks in the technology sector,” said Razaqzada. Meanwhile, the dollar “should get bid against currencies where the central bank is still dovish, namely the euro.”
Investors will also be looking for clues as to whether Fed policy makers have changed their expectation that inflation will prove “transitory,” as well as for any pushback against rising market expectations the Fed will move more quickly and aggressively than previously thought to raise interest rates.
The Fed’s policy announcement will come at 2 p.m. Eastern, after the close of regular trading for gold futures. Fed Chairman Jerome Powell’s news conference begins at 2:30 p.m.
Read: 5 things to watch for when Fed meets Wednesday
In emailed comments, Carlo Alberto De Casa, analyst at Kinesis Money, said gold investors are braced for the central bank decision, unlike when the Fed prepared to taper asset purchases in 2013.
“Chances of another taper tantrum for gold seems to be reduced. In 2013, indeed, gold lost around 28% of its value,” he said. “So far [year to date] bullion posted a loss of around 6%, which was in good part mitigated — for investors outside the U.S. — by the recovery of the greenback on the forex market. 2021 is therefore on track for being much different from 2013.”
In other Comex dealings, December copper
HGZ21,
shed 0.2% to $4.357 a pound.
January platinum
PLF22,
lost 1.5% to $1,023.60 an ounce and December palladium
PAZ21,
traded at $1,982.50 an ounce, down 1.2%.
