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Gold Crashes 3% Despite FOMC Warning Pandemic Will ‘Weigh Heavily’ on Economy

August 19, 2020 at 19:02 by Andrew Moran

Gold futures crashed more than 3% on Wednesday, despite the Federal Reserve sending a bearish signal that the coronavirus pandemic will “weigh heavily” on the economy, labor market, and inflation in the near-term. Gold had already been trading down 2% before the release of the Federal Open Market Committee (FOMC) minutes from the July meeting. Is the rally over?

December gold futures tumbled $61.80, or 3.07%, to $1,951.20 per ounce at 18:44 GMT on Wednesday on the COMEX division of the New York Mercantile Exchange. It has been a roller coaster ride for gold prices since hitting record highs as they have performed in a W-shaped pattern. Year-to-date, the yellow metal is up 28%.

Silver, the sister commodity to gold, is also cratering in the middle of the trading week. September silver futures declined $1.145, or 4.08%, to $26.93 per ounce. The white metal has coped better compared to gold, but it has also been a turbulent ride. So far this year, silver prices have advanced more than 50%.

The US central bank released its minutes from the July 28–29 policy meeting. Last month, the Fed voted overwhelmingly to leave interest rates at the target range of 0% and 0.25%. But officials agreed that the ongoing coronavirus public health crisis would continue to “weigh heavily” on the economy, forcing the institution to keep rates low and maintain unlimited quantitative easing. They also believe that the pandemic would “pose considerable risks to the economic outlook over the medium term.”

Because the world’s largest economy is falling short of returning to its pre-pandemic levels, the Eccles Building will not tighten monetary policy until they are “confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals.”

Although the Fed has pushed for the federal government to employ additional fiscal stimulus tools, Fed Chair Jerome Powell and the Committee about the rising national debt. With the government issuing hundreds of billions of dollars in debt and the Fed continuing to acquire Treasurys, the FOMC is worried that the trends “could have implications for market functioning.”

In the end, the Fed believes forward guidance – parameters for future rate action – could be improved in the future.

Financial markets were not pleased by the minutes as the leading stock indexes wiped out all their gains. The greenback, however, rallied in the aftermath of the FOMC meeting summary as the US Dollar Index topped 93.00.

In other metal commodities, September copper futures rose $0.0255, or 0.86%, to $3.0005 per pound. September platinum futures shed $30.60, or 3.14%, to $944.80 per ounce. September palladium futures plummeted $57.90, or 2.6%, to $2,170.39 an ounce.

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