Precious metals traded lower on Tuesday (Dec. 14) after a jump in U.S. producer prices fueled expectations for sooner-than-expected interest rate hikes ahead of the Federal Reserve’s two-day meeting.
The US central bank is expected to move the deadline for ending the tapering process to an earlier date, with the first interest hike coming by mid-2022, according to a CNBC survey. Gold, which pays no interest, was seemingly affected by a potentially accelerated timeline for rate hikes.
Gold fell 0.89% to $1,771.36 per ounce at 9:49 am ET while silver fell by 2.16% to sell for $21.83 per ounce. Platinum dropped 0.59% to change hands for $926.15 per ounce at the same time while palladium lost 3.44% to $1,633.55 per ounce a minute later.
“Should the Fed step up the gear on tapering, this is likely to punish gold prices as the dollar appreciates, yields rise and rate hike expectations jump,” FXTM analyst Lukman Otunuga said in a note.
Reduced stimulus and higher interest rates raise the non-yielding bullion’s opportunity cost, denting its appeal.
The Fed meeting comes as inflation, released last Friday, showed consumer prices increased by 6.8% in November year-over-year the highest since June of 1982, and in line with forecasts. The print marks the 9th consecutive month the inflation stays above the Fed’s 2% target as global commodities rally, rising demand, wage pressures, supply chain disruptions and a low base effect from last year continue to push prices up. Excluding food and energy, inflation went up to 4.9% from 4.6%, the highest since June of 1991.
The market’s inflation woes were further compounded Tuesday by the producer price index, which rose to a fresh record of 9.6%, above forecasts of 9.2% in November. That’s the fastest pace since 12-month data were first calculated in November 2010.
The annual rate of core producer price growth accelerated to 6.9% last month from 6.3% in October, reaching the highest level since 12-month data were first calculated in August 2014.
“While we continue to expect producer prices to reach an apex in Q4, persistent supply headwinds will keep input and transportation costs sticky and only allow for a gradual moderation in price pressures,” said Mahir Rasheed, U.S. Economist at Oxford Economics.
The Federal Reserve’s two-day review wraps up on Wednesday. The monetary policy announcements from the European Central Bank, the Bank of Japan, the Bank of England and the Swiss National Bank are also due this week.
On Wall Street, U.S. stocks slipped as traders digested the latest inflation numbers and awaited the Fed’s decision.