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July 1st - Six sources revealed that the European Central Bank (ECB) is considering doubling the required reserve ratio for banks to hold in interest-free accounts. This move would reduce the central banks own interest expenses and mitigate the side effects of its anti-inflationary measures. The sources said the potential increase is being discussed among ECB policymakers, with a proposed minimum reserve requirement to be raised from 1% to 2% of bank customer deposits and other funding sources. This would help central banks in cash-rich countries like Germany reduce losses from paying interest on bank deposits exceeding legal requirements. Over the past decade, these excess deposits have grown to trillions of euros through bond-buying stimulus programs. This move would also absorb some excess liquidity and advance the ECBs efforts to guide banks away from free cash, an issue that will be reconsidered in this years so-called framework review. The sources said a decision on the potential measure is expected before autumn. It is understood that internal discussions within the ECB are still in their early stages, and the Governing Council has not yet formally discussed the matter.July 1st - A survey reveals that global central banks are accelerating adjustments to their foreign exchange reserve structures as US political and geopolitical risks rise. A survey of 74 central banks by the Official Monetary and Financial Institutions Forum (OMFIF) in London shows that for the first time, "the number of central banks planning to reduce their dollar holdings over the next decade exceeds those planning to increase them," reflecting a decline in the dollars attractiveness. The report points out that geopolitical factors have become one of the main reasons influencing the willingness to invest in the dollar, coupled with rising uncertainty in US trade policy, driving a global trend of "de-dollarization." Despite this, the dollar still accounts for approximately 58% of global central bank reserves and will maintain its dominant position in the short term. Meanwhile, central bank demand for gold has increased significantly, with a record proportion of surveyed institutions planning to increase their gold holdings to hedge against geopolitical risks and financial system instability. Furthermore, the euro and the renminbi are also gaining attractiveness, receiving more attention in international trade and diversification, respectively, while some emerging market currencies are also favored. Overall, the global reserve system is showing a slow trend of diversification; the dollars dominance remains, but its marginal advantage is declining.The Federal Reserve accepted a total of $26.9 billion from 10 counterparties in its fixed-rate reverse repurchase operations.Sources at the European Central Bank: Policymakers are discussing raising the minimum reserve requirement ratio for banks from 1% to 2%.European Central Bank sources say a decision on minimum reserve requirements is expected in the fall.

Gold Remains Above $1,800 As The Fed Mulls Inflation

Skylar Williams

Dec 14, 2022 10:48

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Gold prices hovered near a six-month high on Wednesday as markets awaited the Federal Reserve's decision on interest rate hikes and inflationary pressures, following a sharp rally in the previous session.


Inflation as measured by the U.S. consumer price index (CPI) decreased further in November, indicating that price pressures in the country have peaked and are likely to decline.


Spot gold was unchanged at $1,809.90 per ounce at 19:21 EDT, and gold futures were also unchanged at $1,820.70 per ounce (00:21 GMT). Tuesday witnessed an increase of 1.6% for both assets.


As a result of tighter monetary conditions, falling fuel prices, and sluggish economic growth, the U.S. Consumer Price Index (CPI) fell by more than anticipated in November, to 7.1%. In addition, it was the lowest reading for inflation in a year.


The focus is currently on the conclusion of the Federal Reserve's final meeting of the year, which is scheduled for later in the day. It is anticipated that the Federal Reserve will increase interest rates by 50 basis points (bps).


However, the markets will closely watch Fed Chair Jerome Powell's post-meeting address to determine whether the central bank believes inflation has cooled sufficiently to begin further tapering its rate-hiking pace.


Given that the Fed has maintained a generally hawkish stance against inflation this year, Fed-related expectations also capped Tuesday's risk-driven market rally.


This year, the Fed's series of sharp interest rate hikes devastated metal markets, as the central bank prioritized fighting inflationary pressures. Indications of slower rate hikes are likely to benefit markets in the short term.


Other precious metals also recorded significant gains on Tuesday. Futures for platinum increased by 3.3%, while futures for silver increased by 2.2%.


Copper prices fell among industrial metals on Wednesday due to persistent uncertainty surrounding demand in China, the largest importer in the world. Copper futures per pound dropped 0.2% to $3.8407, a decrease of $0.02.


While the red metal followed the dollar lower on Tuesday, fears of sluggish demand in the immediate future limited gains.


China is experiencing its worst COVID outbreak to date, and the number of cases is expected to rise as the country relaxes its restrictions on the virus.


On the supply side, however, red metal production may tighten in the near future, particularly due to civil unrest in Peru, the world's second-largest copper producer.


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