Gold Price Drops As US Dollar Jumps; Fed Eyes Start Of Tapering

The Federal Reserve just released its latest update on monetary policy. FOMC officials left benchmark interest rates and the pace of asset purchases unchanged as widely expected, but changes to language in the press statement is fueling some volatility. Specifically, the Fed acknowledged that the economy has made progress toward its maximum employment and price stability goals.

This sets the table for the central bank to start tapering its QE program in the near future as this subtle shift in tone takes us one step further down the taper timeline. As such, gold price action is facing downward pressure as the US Dollar surges across the board of major currency pairs. Treasury yields are pushing higher across the curve too with the two-year jumping to 22-basis points.

GOLD PRICE CHART WITH DXY INDEX & TWO-YEAR TREASURY YIELD

Gold price chart US Dollar Treasury Yields

Chart by @RichDvorakFX created using TradingView

To be fair, though, the immediate reaction by markets is a bit messy. This could be because the updated FOMC statement does not specify that “substantial” progress has been made; only that progress has been made. That all said, traders now shift focus to Fed Chair Powell who is due to speak at his follow-up press conference at the bottom of the hour. Markets will likely have an ear out for Powell’s guidance on how close we are to reaching substantial further progress, how taper talks have progressed in particular, and how downside risks posed by the delta variant of covid might weigh on the timeline for tapering.

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