FX Spotlight | Gold: Fed’s tapering talk may contain rallies | Article – HSBC VisionGo

Gold: Fed’s tapering talk may contain rallies
Finance  ·    ·  6 mins read

  • Gold price rose last Friday, as US employment data for May pulled down the USD and US Treasury yields
  • In our precious metals analyst’s view, gold is likely to push a little higher over the near term, as US Treasury yields look sluggish…
  • …but if the Federal Reserve’s (Fed) tapering debate picks up, gold rallies may be tested

US employment data for May came in below expectations, weighing on the USD and US Treasury yields

The USD and US Treasury yields swing on US surprise economic data, leaving gold open to increased volatility, in our precious metals analyst’s view.

The downside surprise of the US jobs data for May (released on 4 June) undermined the USD via a drop in US Treasury yields and allowed for the gold recovery. US nonfarm payrolls rose 559k in May, somewhat below consensus expectations (+675k), but roughly twice as fast as the 278k increase in April (Bloomberg, 4 June 2021). In our economists’ opinion, US employment continued to recover solidly in hard-hit sectors, with average hourly earnings for leisure and hospitality jobs rising noticeably. This signals hiring challenges as activity ramps up.

Fed’s tapering debate is data-dependant, in our economist’s view

In our economists’ view, US labour and earnings data are important benchmarks, as the Federal Open Market Committee (FOMC) may soon begin to discuss how a tapering of its asset purchases would unfold, even as it awaits more economic data to determine when it may become appropriate to implement such a plan. If US job gains were to average 500,000 per month going forward, it would still take until towards the end of 2022 to return the employment-to-population ratio to its pre-pandemic 61% level, according to our economists’ estimation.

An increase in tapering talk has the potential to weigh on gold, in our precious metals analyst’s view

Our economists expect that the FOMC may begin discussing tapering tactics as soon as at its 15-16 June meeting and announce tapering its current USD120bn per month in asset purchases in December. Before entering into the blackout period on 5-17 June (which Fed officials generally do not speak publicly), Dallas Fed President Robert Kaplan, an advocate for tapering, suggested that the US has weathered the COVID-19 pandemic. Kaplan advocated, “adjusting our purchases with a view to taking the foot off the accelerator gently, gradually, so we can avoid having to depress the brake down the road”, when speaking at a virtual event at Rice University on 3 June (Reuters, 3 June 2021). However, New York Fed President John Williams said on the same day, we are still ways off maintaining the substantial further progress required before there are adjustments to the Fed’s asset purchase programme (Bloomberg, 3 June 2021). But at the very least, discussing that tapering is on the cards, even if the commencement of tapering may still be further down the road, can be a powerful headwind to gold, in our precious metals analyst’s view.

Our precious metals analyst believes a weaker USD and sluggish US Treasury yields should support gold to stay firm over the near term

Despite the possible increase in the tapering debate, other developments, such as escalating trade tensions and increases in central banks’ gold reserves, are supportive for gold. Gold is most likely to push a little higher over the near term, as the US Treasury yields and the USD look sluggish and may consolidate around USD1,900 per ounce, in our precious metals analyst’s view.

Disclosure appendix

This document is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as investment advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs and, if necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products. 
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered here on a principal or agency basis.
Whether, or in what time frame, an update of this information will be published is not determined in advance.
Additional disclosures
  1. This report is dated as at 07 June 2021.
  2. All market data included in this report are dated as at close 04 June 2021, unless a different date and/or a specific time of day is indicated in the report.
  3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
  4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.


This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2021. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.