A gold necklace and earrings displayed inside a Titan Co Tanishq jewellery store during the festival of Dhanteras in Mumbai, India, on November 2 2021. Picture: BLOOMBERG/DHIRAJ SINGH
A gold necklace and earrings displayed inside a Titan Co Tanishq jewellery store during the festival of Dhanteras in Mumbai, India, on November 2 2021. Picture: BLOOMBERG/DHIRAJ SINGH

Bengaluru — Gold prices eased on Wednesday as traders cautiously awaited the outcome of the US Federal Reserve policy meeting where the central bank is likely to announce tapering of its economic support and also address growing inflationary risks.

Gold is traditionally viewed as a hedge against inflation, but reduced stimulus and interest rate hikes tend to push government bond yields up, raising the opportunity cost of holding bullion, which pays no interest.

Spot gold was down 0.4% at $1,780.90/oz, at 5.26am GMT. US gold futures dropped 0.4% to $1,781.30.

The Fed is expected to announce the start of stimulus tapering at its policy announcement at 2pm GMT. It is likely to begin paring its monthly asset purchases by $15bn each month until ending them by mid-2022.

Investors will also look out for any clues as to when the US central bank might raise interest rates to contain growing inflationary pressure.

“In the short term, gold could remain under pressure because a lot of central banks will be tilted towards normalising monetary policy, gradually tapering their asset purchases, especially higher inflation,” Hitesh Jain, lead analyst at Mumbai-based Yes Securities said.

“But, if bond markets are right in their expectations for higher inflation and lower growth — stagflation, in the years ahead, that should be quite bullish for gold,” Jain said, noting that subdued longer-term US bond yields reflected concerns of stagflation.

Market participants are also eyeing a Bank of England policy meeting on Thursday after data suggested unemployment is unlikely to rise sharply, bolstering the case for the first rate hike by a major central bank since the coronavirus crisis.

Spot silver fell 0.5% to $23.40/oz. Platinum dropped 0.4% to $1,034.03, while palladium rose 0.6% to $2,022.53.

Reuters

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