Gold Prices Drop Ahead of The Fed's Monetary Policy Release

Gold moved lower amid market expectations of an acceleration of the Fed's tapering program. A hawkish tone of the FOMC statement will further pressure gold.

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Gold prices fell slightly ahead of the Fed's monetary policy announcement later in the day. In the trading session Wednesday (15/December) this evening, XAU/USD traded at $1770.12, continuing its 0.81% slump following yesterday's US Producer Inflation report.

Spot gold was trading at $1769.50 an ounce, little changed from the previous session. On the Comex in New York, gold futures fell 0.2% to $1769.60.

Yesterday, the US Production Price Index (PPI) for November reported an increase of 0.8%, higher than expectations of a decline from 0.6% to 0.5%. Gold responded to this news with a decline because high US inflation will further support the Fed's chances to accelerate bond tapering and increase interest rates.

Meanwhile, US Retail Sales data released tonight did not significantly affect market movements. November US retail sales rose only 0.3%, lower than the 0.8% forecast and down from the previous month's level of 1.8%.

Markets Wait How Hawkish The Fed's Statement Is

Currently, all focus is on the announcement of the results of the FOMC meeting to confirm expectations of accelerated tapering. The reduction in the Fed's stimulus has been the biggest factor depressing gold prices. According to analyst Xiao Fu from Bank of China International, the potential for monetary tightening of the Fed keeps gold prices under pressure. If the Fed's monetary policy turns out to be more aggressive than current market expectations, gold prices could be under pressure even more.

Currently, uncertainty is increasing considering that the results of research on infection with the Omicron variant of the COVID virus vary in each infected country. Therefore, the issue of this virus is expected to be considered by Fed officials in determining policy.

According to the Commerzbank analyst team, what is more interesting than the announcement of the accelerated tapering is actually the Fed Chair's comments, especially regarding the possibility of a rate hike.