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Gold Holds Near Two-Month High Ahead of Fed Policy Decision

Bullion has risen more than 4% since the end of November as demand for an inflation hedge outweighed the end of the easy-money era

Gold Holds Near Two-Month High Ahead of Fed Policy Decision
A row of gold ingots. [Photographer: Andrey Rudakov/Bloomberg]

Gold held near the highest level in more than two months as investors awaited the outcome of a U.S. Federal Reserve meeting that could offer more clues on the outlook for monetary policy tightening. 

Fed Chair Jerome Powell and his fellow policy makers are expected to signal their first interest-rate hike since 2018, setting the stage for a March move to cool red-hot inflation. The Federal Open Market Committee is all but certain to hold its benchmark rate near zero after the two-day meeting that ends Wednesday, while sticking to a plan to end its bond-buying program in March.

Gold Holds Near Two-Month High Ahead of Fed Policy Decision

Bullion has risen more than 4% since the end of November amid headwinds in equity markets as investors hone in on the possibility of an error by the Fed. The risk of a Russian invasion of Ukraine and a cut in the International Monetary Fund’s world economic growth forecast for this year are also aiding the haven asset.

“Gold is simply becoming a Fed policy mistake hedge,” Nicky Shiels, head of metals strategy at MKS PAMP SA, wrote in a note. “An accelerated Fed tapering will cause financial conditions to tighten further and gold to outperform equities, to a point.”

Meanwhile, there has been an increase in gold demand from investors. Exchange-traded funds have added more than 5 tons of bullion so far this week, building on the 33 tons taken in the week before.

Spot gold was little changed at6 $1,844.80 an ounce as of 1:42 p.m. in London, after rising to the highest intraday level since Nov. 19 on Tuesday. The Bloomberg Dollar Spot Index was little changed. Silver and platinum gained, while palladium rose as much as 6.1 to the highest since September.

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