Gold and silver both experienced massive declines this week, all of which happened on Thursday, the day after the latest FOMC meeting. This huge drop in the value of both gold and silver will undoubtedly bring out bargain-hunters, though it is unsure whether bargain hunting demand will be enough to help gold and silver gain back any of their losses. Apart from the FOMC meeting, there were not many other major news stories to report on.
The Federal Open Market Committee, or FOMC, is the group of people who decide what monetary policy in the United States is going to look like. A while ago they instituted what is known as Quantitative Easing, which is more or less a government bond buying program that pumps money into the economy in order to devalue the US currency. A devalued dollar will make exports cheaper and thus spur economic activity. This policy was essential in bringing the United States out of the economic, worldwide recession that we witnessed back in 2008.
A popular thought is that the US economy has recovered to the point where QE is no longer necessary. Whether this is true or not is disputed among market experts everywhere, but an undeniable fact is that the US economy has definitely improved since 2008. The meeting we saw take place this past week was supposed to see the FOMC decide on what the future of monetary policy holds for the US. The popular thought was that they would announce no major changes, and that is exactly what was the case. Because little to no changes were announced, gold and silver did little moving in the wake of the meeting. What really caused metals to move happened after the meeting was over.
Ben Bernanke Press Conference
The Federal Reserve chairman, Ben Bernanke, held a press conference after the FOMC meeting, and this is when things went awry for gold and silver. Even though the FOMC did not make any official changes to monetary policy, specifically QE, Bernanke announced that bond buying could be reduced in the near future.
A reduction in government monthly bond-buying means that the US Dollar will inevitably gain value, something that is awful for precious metals. Because investors fear that Bernanke and his minions may be in the process of reducing bond-buying, gold and silver were being sold in massive quantities as it was no longer viewed as a safe-haven asset.
Gold, silver, and other commodities were not the only things taking heavy hits from the outcome of this meeting as world stock markets tumbled too. Asian, European, and United States stocks all came in weaker on Thursday and Friday than they were during the first three days of the week. There was a small bounce back on Friday for gold and silver, but metals did not even come close to making up the massive losses we saw only a few days ago.
Gold started the week at $1,390 and by closing time on Friday had lost nearly $100 to now be sitting at a spot value of $1,295.
Silver started the week at $22.09 and by the end of the day Friday had lost significant value to now be holding a spot value of $20.09.
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