Gold Records Worst Monthly Loss in Five Years on Fed ‘Taper-Tantrum’

© Reuters.

By Barani Krishnan

AiVIF.com - Gold suffered its worst monthly loss in almost five years as bulls in the yellow metal were buffeted by incessant speculation of stimulus tapering and rate hikes by the U.S. central bank — despite neither of that looking likely to happen anytime soon.

Front-month gold futures on New York’s Comex settled Wednesday’s trade at $1,771.60, down $8, or 0.5% on the day. For the month though, it plunged almost $135, or 7%, its most since a 7.2% drop in November 2016.

For the quarter, Comex gold’s loss was less though still substantial — at around $45 or almost 3%.

Conviction has become a rare commodity in gold as the average long investor tried to stay true to the yellow metal through its travails of the past six months.

Since January, gold has been on a tough ride that actually began in August last year, when it came off record highs above $2,000 and meandered for a few months before stumbling into a systemic decay from November, when the first breakthroughs in COVID-19 vaccine efficiencies were announced. At one point, gold raked a near 11-month bottom at under $1,674.

After appearing to break that dark spell with a bounce back to $1,905 in May, gold saw a new round of short-selling that took it back to $1,800 levels before talk of monetary tightening by the Federal Reserve sent it to a two-month low of around $1,750 this week.

For the record, the Fed has indicated that it expects two hikes before 2023 that will bring interest rates to 0.6% from a current pandemic-era super-low of zero to 0.25%. It has not set a timetable for the tapering or complete freeze of the $120 billion in bonds and other assets it has been buying since March 2020 to support the economy through the Covid crisis.

That has, however, stopped senior bankers on the central bank’s all-important FOMC, or Federal Open Market Committee, from commenting on the likelihood of a taper or rate hike in their public speeches. And talk they have, day after after, week after week since the FOMC’s meeting for June.

Typically, each hawkish speech on a taper or rate hike ends up hammering gold more than a dovish comment would lift it.

Also, amazingly lost in the whole transition is gold’s position as a hedge against inflation. The Fed’s preferred inflation gauge, the Personal Consumption Expenditure Index, grew by a multi-year high of 3.4 percent in the 12 months to May. The more popular Consumer Price Index, meanwhile, jumped 5% in the year to May, its most since 2008.

Most commodity prices, from oil to grains such as soybeans, corn and wheat, are also at multi-year highs.

But gold continues to fall, while the Dollar Index and U.S. 10-year bond yields have periodically risen, often on inane Wall Street talk and research about taper and rate hikes, despite trillions of dollars of government spending since the outbreak of the pandemic.