Jakarta, CNBC Indonesia – World gold prices have been declining in the last 2 days ahead of the announcement of the monetary policy of the United States (US) central bank, also known as the Federal Reserve (The Fed).
Attention is indeed focused on the central bank led by Jerome Powell, because it will have a significant impact on gold prices.
The Fed will announce monetary policy in the early hours of Thursday (4/11) Indonesian time, and will almost certainly reveal tapering or a reduction in the value of the asset purchase program (quantitative easing/ QE).
Tapering happened in 2013 and made gold prices enter the trend bearish (price drop over a long period of time).
On December 3, 2015, the lowest point reached was US$ 1,045.85/troy ounce, this level was the weakest since February 2010.
Reflecting on this movement, market participants are of course worried that gold will decline again. In today’s trading, Wednesday (3/11), at 15:28 WIB, gold prices fell 0.3% to US$ 1,782/troy ounce.
Despite having a bad experience with tapering, the current condition is different from 2013, because there is high inflation in various countries which can maintain gold’s performance. In addition, analysts see the current gold price has measured the occurrence tapering.
It’s just, it’s still unknown how aggressive tapering will be done. The market currently sees the Fed will reduce QE by US $ 15 billion per month from the current US $ 120 billion per month. So it will take 8 months for QE to be zero or complete.
If the Fed is aggressive in doing tapering, and indicates that it will raise interest rates next year gold is at risk of slumping.
However, Carsten Fritsch, commodities analyst at Commerzbank, said that was not going to happen, and gold has a chance to go up.
“I expect the Fed to announce it is starting to tapering, but I don’t see them giving a specific time when it will raise interest rates, “Fritsch was quoted as saying. CNBC International.
“That will cause disappointment in market participants who were expecting something more specific that would send gold towards $1,800/troy ounce again,” he added.
Meanwhile, Robert Minter, director of investment strategy at abrdn (formerly Aberdeen Standard Investment) said the current gold price should be near US$1,900/troy ounce, not US$1,800/troy ounce.
“If you see yield (bond yields) in real terms at this time, gold should be near US$1,900/troy ounce instead of US$1,800/troy ounce. The price of gold is currently cheap for us,” Minter said Kitco, Tuesday (2/11).
Minter sees, even if the Fed tightens monetary policy, the supply chain disruption problem will not be solved, and inflation will still be high.
Gold has traditionally been considered a hedge against inflation. So when inflation is high, demand will increase.
“It’s only a matter of time investors will turn to gold as a hedge,” Minter said.
CNBC INDONESIA RESEARCH TEAM
(pap / pap)
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