Your basket will timeout in Checkout
£
Gold
£ /oz
£ /g
Silver
£ /oz
£ /g
Gold
 /oz
 /g
Silver
 /oz
 /g
$
Gold
$ /oz
$ /g
Silver
$ /oz
$ /g
Your session has timed out
refresh session
Time remaining:

LAWRIE WILLIAMS: Gold and Silver dipped sharply on Friday

Gold and silver both ended the week sharply lower with a big drop for both precious metals occurring shortly after noon New York time on Friday.  The catalyst for the sharp fall was reckoned to result from  a speech by Fed board member Christopher Waller.  Waller is one of the more hawkish members of the current Fed board, and expressed his views on what he felt short to medium term Fed policy should be given the current high inflation levels.  He conceded that inflation was running both higher, and would likely persist for longer, than the Fed had previously envisaged and offered his proposed solution for correcting this, which was seen to be largely responsible for the gold and silver price dips in case it could become official Fed policy..

Waller’s recommendation was for the Fed to implement, and continue, its bond purchasing tapering programme at a higher monthly rate than had previously been planned.  If that idea is followed then bond purchasing would be completed earlier in 2022 which, in essence, would allow the Fed to start raising interest rates, to help combat the inflationary trend, a month or two earlier than had previously been suggested.  That was considered to be negative for gold despite any likely date for raising interest rates still being many months ahead.  There has not yet been any confirmation that such a programme is even being contemplated, let alone would find agreement across the whole Fed board.

The whole idea becomes even more uncertain with continuing speculation that Fed chair Jerome Powell will step down from this position when his current term ends early next year.  Powell is a Republican, and the position is in the purview of Democrat U.S. President Joe Biden, who is thought to be weighing up the decision to keep Powell on as Fed chair, or effectively dismiss him.  If this latter happens, Powell’s likely successor as Fed chair is thought to be Lael Brainard, who is reckoned to be on the dovish side of the Fed board and might therefore be likely to continue with the Fed’s current tapering and interest rate raising calendar.  A decision on Powell’s future is due some time in the current week and any likely Fed programme should become more transparent thereafter.

There is perhaps even more uncertainty regarding Fed policy ahead with three more Fed board members due to stand down in the near future and their likely replacements would be selected by Biden.  Powell is thought unlikely to continue on the Fed board if he stands down from or is relieved of his position as chair which would make a fourth new position on the Fed board to be within  Biden’s grasp too.  The new appointees would be expected to follow Biden’s preferred path, which would be unlikely to interrupt any potential economic recovery and fall in unemployment, and would thus most probably be at the dovish end of the Fed spectrum, and vote for maintaining the low interest rate options for longer. 

The next FOMC meeting at which potential policy changes are usually discussed takes place in around 3 weeks time on December 14th and 15th and will be preceded by a new Personal Consumption Expenditure (PCE) Index release – the Fed’s preferred inflation measure.  This is due for publication in the middle of this week.  The consensus is that this will remain above 4%, around double the Fed’s announced ‘ideal’ level.  If it comes in higher than this, as some expect, then that could prompt an acceleration of the Fed’s tapering programme and interest rate rises as Waller has been suggesting.  A Powell or Brainard-led Fed, though, might resist this option.

A recent Reuters survey of economists suggested that the Fed would be unlikely to start to raise interest rates until at least Q4 next year.  Inflation has been rising since then, though, and the current perhaps scarier levels could come into the equation sooner rather than later.  Any indication between now and the New Year that the Fed might be bringing interest rate rises in earlier than anticipated could delay any rise in gold and silver prices, but we suspect caution may prevail until unemployment comes down below the Fed’s primary target ‘maximum’ rate – thought to be around 3.5%.  If this proves to be the case we see gold and silver regaining their upwards paths and thus stick to our year-end predictions of $1,900 gold and $27 silver.  Any wavering from this path by the Fed could, however, put a dent in these forecasts.

A continuation of potentially out-of-control rising inflation, coupled with the the current ultra-low interest rates, would likely enhance the safe haven attractions of gold and silver.  This would have to be considered positive for the two most heavily invested precious metals, although platinum and palladium would, in our view be less affected as they are both primarily nowadays driven by industrial supply/demand fundamentals. 

22 Nov 2021 | Categories: Gold, Silver, Dollar, US, Platinum, Palladium, FOMC

Send a message

Can we help?-

We are online Mon-Fri between 9am-5pm. Please leave a message and we'll get back to you.

Our showroom is also open Mon-Fri between 9am-5pm at 54 St James's Street, London, SW1A 1JT.

Contact us on +442078710532.

Many thanks for your time, we will be in touch where appropriate.

Close