Gold pared gains as traders grew cautious on bets of further monetary easing next year after US Federal Reserve officials offered strongly opposing views on Friday.
Declines in US equities, driven by a selloff in technology shares, also meant some investors may have to exit their positions in metals to cover losses elsewhere.
Federal Reserve Bank of Cleveland President Beth Hammack said she would prefer interest rates be slightly more restrictive to keep pressure on inflation, which remains too high. Kansas City Fed President Jeff Schmid made the same argument, adding that’s why he dissented against the central bank’s decision this week to lower rates.
After the policymakers’ remarks, yields on Treasury 30-year bonds rose, sending bullion lower by as much as 0.5% before paring some of the losses. The precious metal typically performs well in a lower-rate environment and investors now are looking for more certainty on the outlook.
The selloff appears broad-based across commodities markets and risk assets and is likely related to the aftermath of Wednesday’s Fed meeting, said Dan Ghali, senior commodity strategist at TD Securities.
Gold traders initially cheered the Fed’s announcement that it will begin buying $40bn of Treasury bills per month starting December 12 as it’s looking to rebuild reserves in the financial system, a move signalling more easing ahead. The Fed stopped shrinking its holdings earlier this month, a process known as quantitative tightening, amid signs reserves in the banking system were no longer abundant.
Markets are still debating whether the central bank’s reserve management purchases program is an effective form of quantitative easing, Ghali said.
The Wall Street Journal reported on Friday US President Donald Trump said he was leaning toward choosing either former Fed governor Kevin Warsh or National Economic Council Director Kevin Hassett to lead the Federal Reserve next year. Hassett has emerged as the front runner and is widely considered a supporter of Trump’s preference for lower rates.
Silver retreated from an all-time high above $64. The white metal has been on a tear recently, helped by exchange-traded fund inflows and physical market tightness.
On iShares Silver Trust (SLV), the largest silver ETF, total call open interest hit the highest since 2021 this week. Meanwhile its total put open interest is at a record. The cost of buying calls relative to the cost of buying equivalent puts, which protect against downside in prices, has also jumped to a years-long high in recent weeks.
Spot gold gained 0.6% to $4,304.26 an ounce in New York on Friday. Silver tumbled 2.4%. Platinum rose while palladium fell. The Bloomberg Dollar Spot Index was up 0.1%.
