Gold prices remain in negative territory as Federal Reserve reduces its monthly bond purchases - Kitco NEWS

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(Kitco News) - Gold prices are holding steady but remain in negative territory as the Federal Reserve said it will reduce its monthly bond purchases.

Markets have widely expected the announcement.

"In light of the substantial further progress the economy has made toward the Committee's goals since last December, the Committee decided to begin reducing the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities," the central bank said in its monetary policy statement.

Along with the tapering announcement, the Federal Reserve also kept interest rates unchanged at the zero-bound range, in line with market expectations. Markets continue to price in a rate cut by June 2022.

The Federal Reserve reiterated its stance that rising inflation pressures will be temporary; simultaneously, the committee also acknowledged why prices are rising.

"Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors," the statement said.

"The path of the economy continues to depend on the course of the virus. Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation," the committee added.

Gold prices last traded at $1,765.10 an ounce, down 1.32% on the day.

Katherine Judge, senior economist at CIBC, said that the Federal Reserve's tapering pace indicates that the process will be finished by mid-2022. She added that this sets the stage for the central bank to raise interest rates twice next year.

However, other economists have said despite the Fed’s tapering move, it will not be in any hurry to raise interest rates. Paul Ashworth, chief US Economist said that the language in the latest statement shows that the doves are still in control of the committee.

“given the inflation language, this is a bit more dovish than we expected and, despite surging market expectations, supports our view that the Fed won't begin hiking interest rates until early 2023,” he said.

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Gold prices remain in negative territory as Federal Reserve reduces its monthly bond purchases - Kitco NEWS
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