17.06.202112:17 Forex Analysis & Reviews: Gold crashes on the news that bond purchases may be cut soon

Gold collapsed on Wednesday, after the Federal Reserve said they will start discussing plans to reduce bond purchases. But the biggest crash came on the news that interest rates will rise to 0.6% in 2023.

Gold dropped to as low as $ 30.

As noted above, the main driver were:

1. High inflation expectations;

2. Possibility of two rate hikes in 2023.

Currently, core inflation is 3%, which is higher than the March forecast of only 2.2%.

In any case, Powell stressed that the surge in inflation is temporary, and is set off by the ongoing economic recovery. He drew parallels between rolling inflation and rising sawnwood prices, which are now stabilizing after massive increases. He said that prices that were rising very quickly due to scarcity will stop growing soon, and in some cases, will drop down.

When asked about what full employment would look like after the COVID-19 pandemic, Powell raised the issue of labor shortages. He said employment growth is constrained by a combination of factors, namely retirement, the time it takes to find a new job, fears associated with COVID-19, economic restrictions and existing unemployment benefits. In fact, Fed forecasts employment to increase only in summer and autumn.

But Powell assured that recovery will be strong enough, so real GDP will grow at a rapid pace.

Many of the questions Powell received were about phasing out costs and recommendations of a $ 120 billion cut in monthly bond purchases.

And after Powell said inflation will be short-lived, gold slipped 30 pips.