Gold suffered its worst week since the 2020 Covid-19 outbreak as its price declined by 6% as a result of the US Federal Reserve’s (FED) expedited timetable for rate hikes and stimulus tapering. The announcement by the FED generated fear which caused Gold to plummet amidst a stronger dollar index.
Gold futures on New York’s Comex settled at $1,769 per ounce on Friday, after declining 0.3 for the day. For the week, Gold declined by $110, representing a 5.9% drop, the biggest drop in Comex gold since the week ended March 6, 2020. The spot price of gold closed the week at $1,765.53 representing a 0.4% drop on Friday. For the week, Gold dropped by $111, which represents an approximately 6% decline.
READ: Iran bans Bitcoin Mining
What caused the decline?
The Federal Reserve signaled at the end of its monthly FOMC (Federal Open Market Committee) meeting on Wednesday that it will raise interest rates at least twice by the end of 2023 to 0.6% from current levels of zero to 0.25%.
The FED also said it was looking out for data on when to start tapering its monthly asset purchase of $120 billion. The central bank has been buying at least $80 billion in treasury bonds and $40 billion in mortgage bonds to support credit markets and the economy since the COVID-19 outbreak last year.
Although the move by the FED was anticipated, it still managed to generate more market panic than necessary, sending the Dollar Index rallying on the rate hike expectations and hammering commodities priced in the currency in the process. This news has also affected the stock market and the controversial cryptocurrency market as Bitcoin traded below $36,000 as of the time of writing this report.
Short sellers in Gold loaded up massively after the FED’s announcement, despite U.S. weekly jobless claims on Thursday that had been supportive to gold.
Ed Moya, an analyst at online trading platform, OANDA stated, “The reflation trade is no more and this selling across commodities could see further short-term pressure with gold prices”.