Gold and silver moved back and forth for a majority of the week, finishing fairly close to where both metals started the week at. There was not much economic news to talk about, and for a large majority of the week investors focused in on the FOMC’s inaction a week ago. Additionally, a few members of the Fed took to the press to discuss their thoughts in regards to the retention of the Quantitative Easing monetary policy.
In other news, the US government is facing a temporary shutdown at the beginning of next week due to some looming budget issues. While they have had plenty of time, members of Congress seem to be gridlocked in disagreement.
This Week’s Fed Speak
This week, the lack of news sparked conversation amongst investors about the recent decision by the US Federal Reserve to retain their Quantitative Easing monetary policy. The president of the Richmond Federal Reserve bank, Jeffrey Lacker, explained that he was surprised at the FOMC’s decision not to taper QE. Lacker was a supporter of a reduction in the monthly bond-buying program and claims that he still is.
Only a day later, however, the Chicago Federal Reserve Bank president spoke in direct contrast to what Lacker had said a day earlier. Chicago Fed president, Charles Evans, said on Friday that he is confident that the Fed will not reduce QE until at least sometime in 2014. He said that the current US economy is too unstable to slow down the $80+ billion monthly bond-buying initiative.
Now, at the end of September, we are in more or less the same position in regards to US monetary policy as we were at the beginning of the month. Expect speculation about Quantitative Easing to abound up until the FOMC’s next meeting in October.
The European Central Bank announced this week that they are considering taking on a monetary policy similar to that of the US in an effort to spur economic activity. We will monitor the matter and see what the ECB plans to do in regards to monetary policy moving forward.
Looming Debt and Budget Issues for the US
The US government may be forced into a shutdown for the first time in a long time if Congress can’t get its act together. If Congress cannot pass a budget by this upcoming Tuesday, the US government will have no choice but to shutdown. At present, Congress has not and continues to be unable to come to an agreement on the matter of the budget, perhaps a complete shutdown of the government will spur some activity.
Almost immediately after the budget issue is supposed to be resolved, the US government then has to deal with the fact that it will have reached its borrowing limit by the middle of October.
If the government shuts down, it is unclear whether this will cause precious metals to decline in value as is expected from most other markets, or if gold and silver will be seen as safe-haven assets. As of now, many are anticipating that precious metals will follow suit with most other markets and decline in value during a government shutdown.
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