Gold and silver have had a week of ups and downs before and after the Fed finally decided to taper their monthly bond-buying by about $10 billion. While a tapering announcement was more or less expected to take place this week, investors were unsure as to how severe the QE reduction would be.
Though there was plenty of economic data to talk about from other markets around the world, none of it had any sort of major impact on the precious metals market.
FOMC Decides to Taper
For the past three weeks or so, the world marketplace has been obsessing over when and by how much the Fed was going to taper Quantitative Easing. While many investors were convinced that tapering would ensue sooner rather than later, very few were sure of the exact timing of the QE reduction.
When Tuesday’s FOMC policy meeting kicked off gold and silver declined slightly, adding further credence to the belief that the Fed was going to make a tapering announcement this week. When the FOMC meeting wrapped up on Wednesday afternoon and Ben Bernanke was set to address the public, what he had to say was neither hawkish or dovish, but rather right on the line. Bernanke alluded that the Fed would like to pursue similar, small reductions to QE throughout the course of 2014, if economic conditions permit. Bernanke also made it clear that his possible successor as President of the Fed, Janet Yellen, was a complete supporter of the Fed’s actions at this meeting.
Tapering will officially begin in January, at which point the Fed is going to buy $5 billion fewer treasury bonds as well as $5 billion fewer mortgage-backed securities. In the initial aftermath of the meeting and Bernanke’s statement, gold and silver did not do much moving at all, in fact, what little moving they did was in an upward direction. Yesterday, however, was a different story as the market had time to fully digest Wednesday’s tapering announcement, it became clear that both the US Dollar and US stock markets were the winners. The USD index opened up Thursday with a surge that ended up dropping gold to a 6-month low.
On Friday, some consolidation was able to help gold and silver stop their respective declines and post some modest gains. As of midday both gold and silver have improved upon their opening positions, but only slightly. As the spot value of precious metals continues to be subdued by heavy selling pressure and a thriving stock market/USD index, expect bargain hunters to hit the market with full force.