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Gold struggling to hold gains as the Fed looks taper bond purchase by year end - FOMC Minutes

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Editor's Note: Prices quoted in the article were updated to reflect renewed selling pressure.

(Kitco News) - Gold prices are pushing back towards $1,800 an ounce as the Federal Reserve moves forward with talks to reduce its monthly asset-purchase program, according to the minutes from the July monetary policy meeting.

The minutes shows that there is growing support for the central bank to reduce its purchase programs by the end of the year.

“They generally judged that the Committee’s standard of “substantial further progress” toward the maximum-employment and inflation goals had not yet been met, particularly with respect to labor market conditions, and that risks to the economic outlook remained,” the minutes said. “Most participants anticipated that the economy would continue to make progress toward those goals and, provided that the economy evolved broadly as they anticipated, they judged that the standard set out in the Committee’s guidance regarding asset purchases could be reached this year.”

“Some participants suggested that it would be prudent for the Committee to prepare for starting to reduce its pace of asset purchases relatively soon, in light of the risk that the recent high inflation readings could prove to be more persistent than they had anticipated and because an earlier start to reducing asset purchases would most likely enable additions to securities holdings to be concluded before the Committee judged it appropriate to raise the federal funds rate,” the minutes also said.

The gold market has pushed into positive territory in initial reaction to the minutes. December gold futures last traded at $1,791.30 an ounce, up 0.20% on the day.

Although discussions on potentially taper continue to move forward the minutes also reflected ongoing concerns about the health of the U.S. economy, particularly as the country faces rising infections of the COVID-19 Delta variant.

“In discussing the uncertainty and risks associated with the economic outlook, many participants remarked that uncertainty was quite high, with slowing in progress on vaccinations and developments surrounding the Delta variant posing downside risks to the economic outlook,” the minutes said.

The committee also raised concerns that rising inflation pressures might not be as transient as first expected.

“Some participants noted that there were upside risks to inflation associated with concerns that supply disruptions and labor shortages might linger for longer than currently anticipated and might have larger or more persistent effects on prices and wages than they currently assumed,” the minutes said.

While tapering discussions are on the table, the committee noted that they are separate from any potential interest rate hike. The committee noted that the timing of any potential rate hike would depend on the health of the economy.

Katherine Judge, senior economist at CIBC, said minutes shows that market participants could expect to see more detailed taper plans at the September monetary policy meeting.

“Overall, with participants committing to provide advanced guidance of tapering, and with the solid employment report received since this meeting, the September meeting is likely to set the stage for tapering as early as later this year.

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