FOMC Minutes Lead to Volatile Week for Metals

Investors began the week and the new year on a positive note, believing the economy would soon overcome the latest wave of Covid woes. As a result, stocks were up, with the Dow and S&P 500 both reaching record closes on Monday. While this was good news for many, inflation and reactive monetary policy remain key considerations heading into 2022. 

Despite record inflation, gold didn’t have the 2021 that many expected, as the yellow metal was down by about 4.7% on the year. As is often the case silver followed suite, but to a greater degree, shedding 12% in 2021. 

For this week, gold started at $1,827 an ounce, while silver started the week closer to $23.30. Inflation in the U.S. remains near a 40-year high. The uncertainty surrounding inflation has investors focused on certain data points in order to determine risk appetite. One of these data points is certainly monetary policy. 

With a relatively light calendar in terms of scheduled events, the focus was on Wednesday’s release of minutes from the Fed December Fed meeting. Many hoped this would shed light on monetary policy for 2022, in response to record inflation. 

U.S. Stocks were mixed on Tuesday, with the Dow reaching yet another record. Other major indices fell amid surging bond yields. Higher bond yields pushed gold from its six-week high of $1,828, back down to $1,799. Silver had a similar reaction, dipping nearly 3% on Tuesday. 

Recently, U.S. Fed officials pivoted away from using the term “transitory” as it pertains to inflation. Since then, the Fed taken a more hawkish stance by tapering asset purchases in late 2021. Wednesday came, and the much-anticipated FOMC minutes were released.

Wednesday’s FOMC minutes revealed that, “current conditions could warrant a potentially faster pace of policy rate normalization.” Most interpret this as interest rate hikes and a reduction in the Fed’s $9 trillion balance sheet. Since 2020, the Fed has pursued an incredibly loose monetary policy. By their own admission, a tightening in policy had to occur in response to current inflation. 

In the past, equities have fallen victim tightening monetary policy. Given major U.S. indices are near record-highs, some analysists are predicting broader market corrections amid interest rate hikes, and Fed balance sheet reductions.

The immediate reaction to this news was a Thursday drop for Precious Metals and a dip in stocks, with tech stocks leading that directional move. Thursday also saw a continued spike in bond yields. Metals also dropped. Gold dipped by 2% to around $1,787 an ounce. Silver plunged by nearly 5% touching $22.01, as the prospect of rate hikes coupled with yield spikes, spurred a bullion sell-off. 

In addition to Wednesday’s FOMC minutes, investors also anticipated today’s release of non-farm payroll data. The December jobs report from the Labor Department revealed the U.S. added only 199,000 jobs, compared to the 422,000 that were forecasted. 

Following the jobs data, stocks dipped leaving most indices in the red, for what would be the end of a volatile week. The miss in jobs coupled with a weaker dollar would help to steady gold prices. However, higher Treasury yields may lead gold to a weekly decline of just over 2%. Currently, silver is near $22.04 an ounce, which is 5.4% lower for the week.