17.12.202109:40 Forex Analysis & Reviews: Gold surprised everyone with its sharp growth despite Fed's promise to raise rates

It's unexpectedly a fact: the Fed's hawkish strategy has accelerated the price of the precious metal. Yesterday, bullion showed the biggest one-day rise in price in 6 weeks.

The main event this week was the 2-day monetary policy meeting of the Federal Reserve. This time, the American regulator chose a more aggressive tone, due to the ongoing recovery in employment and growing inflation.

On Wednesday, the central bank announced that it was going to double the pace of reducing asset purchases from January to complete the process in March. Officials also predicted 3 interest rate hikes next year.

In response to the Fed's plans, gold reacted with a sharp decline at first, as the US dollar surged on a wave of optimism about a more rapid tightening of the current rate of the regulator.

However, after the press conference of Fed Chairman Jerome Powell, who chose a less hawkish tone during a conversation with reporters, the balance of power in the market changed. The US currency fell, and bullion increased.

By the end of Thursday, the dollar index plunged by 0.5%, to a weekly low, while the precious metal rose by 1.9%, or $ 33.70. The yellow asset ended the session at $1,798.20, although it traded even above the psychologically important level of $1,800 during the day. The intraday high was the highest level since November 22 at $1,800.60.

On Friday morning, bullion continues to adhere to the upward direction. Currently, gold is aiming to end the current seven-day period with an increase of about 0.8%. This will be its first weekly growth since mid-November.

Most experts call the current situation on the precious metals market atypical and even strange. Usually, when the US Central Bank acts aggressively, bullion falls in price, and on the contrary, the US dollar rises, as higher interest rates increase demand for this currency.

Suki Cooper, who is the analyst of Standard Chartered, explains the rise in gold prices contrary to the hawkish rhetoric of the Fed, by the fact that prices considered the possible acceleration of the reduction in asset purchases before the regulator's meeting.

There is also an opinion that the planned rate hike in response to price pressure has increased investors' concerns about the recession in the United States. In view of this, the demand for a protective asset has grown.

In addition, the increase in coronavirus risks, which has been observed in recent days, has also helped to increase traders' interest in this precious metal.

Doctors are seriously alarmed by the rate of spread of COVID-19's Omicron strain, as a result of which fears are growing about the introduction of new restrictions in Europe and Asia. The market is worried that the lockdowns could slow down the global economic recovery.

"It seems that the increase in the number of infections with the new strain of coronavirus has convinced investors to buy the precious metal and hold it until the situation with COVID-19 stabilizes," - analyst Naeem Aslam said.

According to experts, Omicron will support gold prices for the next 2 weeks.

However, gold is getting ready to end this year in the red zone. Standard Chartered estimates the loss to be approximately 8.5%.

"At the beginning of the year, gold prices held up well, but then came under pressure from the high efficiency of vaccines, which supported the recovery of the global economy and returned demand for risky assets," - analyst S. Cooper said.

In the second half of the year, gold prices were stuck in a narrow price range due to uncertainty about the Fed's future policy. But according to Standard Chartered, it's time for gold to shine now that everything is out.

Cooper expects the bullion price to rise to $1,875 in the first quarter of next year. The catalyst for growth will be the weakening of the US dollar. The strategist is sure that this currency will not be able to strengthen as long as the real yield remains negative.