The current reaction of financial markets to the Fed's announcement about the beginning of discussions on the process of tapering the quantitative easing program is called not a taper tantrum, but a taper calmness. In 2013, when the former head of the Federal Reserve Ben Bernanke announced the exit from QE, Treasury yields rose, emerging market stocks fell, and volatility jumped sharply. Now the rates on US debt obligations have been soaring, then falling like a stone, American stock indexes have quickly recovered losses, and the volatility of quotes does not want to grow by leaps and bounds. However, individual assets did experience a real tantrum.

First of all, gold comes to mind, which at the end of the week of June 18 lost about 6% of its value, which was the worst result in the last 15 months. The precious metal was seriously spooked by the Fed's signal that the federal funds rate could be raised in 2023 rather than 2024. Moreover, the Central Bank does not rule out its growth at the two FOMC meetings.

Weekly gold dynamics

While the yield on 10-year US Treasury bonds was on a roller coaster ride, the rates on the 2-year securities sensitive to changes in monetary policy and the dollar were steadily climbing, which was the catalyst for the XAU/USD sell-off. Moreover, St. Louis Fed President James Bullard, said that the tightening of monetary policy could take place in 2022. Only moderately "dovish" rhetoric from other FOMC plenipotentiaries helped gold to feel the ground under its feet.

The head of the Federal Reserve Bank of New York, John Williams, believes that it is too early to talk about raising the rate, his colleague from the Federal Reserve Bank of San Francisco, Mary Daly, argues that the Fed is in a boat – going with the flow and waiting for statistics to confirm its forecasts in order to change something in monetary policy. Jerome Powell noted that the Central Bank will focus on the facts, not on their feelings.

The US dollar retreated, allowing gold to catch its breath. Demand for physical assets in Asia began to grow against the background of falling prices, and the inflow of capital into ETFs at the end of June 18 was the largest in the last three months.

Dynamics of gold and US dollar

Macquarie argues that in the absence of inflation expectations that threaten to become uncontrolled, and with the Fed unwilling or unable to calm the markets, gold risks falling to $1,600 an ounce by the end of 2021.

In my opinion, just as the precious metal at $1,900 looked expensive, now it is undervalued. The Fed is doing what it should do – very slowly, so as not to repeat the history of the 2013 taper tantrum, bringing to the markets the idea of curtailing monetary stimulus. The Central Bank will continue to slowly follow the path of normalization of monetary policy, which will increase the demand for the analyzed asset against the background of accelerating inflation.

Technically, gold has reached the target of 88.6% on the Bat pattern based on 1-2-3, which increases the risk of an upside pullback. A break of resistance at $1,795 per ounce may become a reason for buying. The further fate of the precious metal will depend on its ability to overcome dynamic resistance in the form of moving averages.

Gold, Daily chart