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18 Sep 2013
Gold comes under further overnight selling pressure in advance of Fed announcement
FXstreet.com (London) - Gold came under further selling pressure through the Asian session, breaking below the $1,300/oz barrier. It broke to $1,293.80 before rebounding, but struggled to break back above $1,300.
Gold is going to continue to have a tough time in the run-up to the FOMC press conference following its two-day meeting, which concludes today. Gold has lost its shine as a safe haven asset on the prospect of the Fed tapering its asset purchase programme, knocking $10bn off its asset purchase programme, down to $75bn, reducing the velocity at which it expands M2.
While the Fed has stressed that tapering isn’t tightening, relative tightening is important news in a market where perceptions count.
Gold enjoyed its sustained bull run to 2011 partly due to the Federal Reserve’s debasement of the dollar through continued monetary expansionist policies. With gold seen by many as the only real currency and store of value, investors flooded into the haven metal, which peaked above $1,900/oz. But as volatility dropped, and investors faced with record low bond yields went in search of returns, they sold off gold and returned to riskier assets.
There of course remains the possibility that Ben Benanke will hold fire on any tapering of “QE Infinity”, taking the view that the US recovery is still too fragile to risk derailing by removing the cheap cash upon which markets have grown to depend. If this happens today, expect to see some short term gains in gold. But the fact of the matter is that the Fed will reduce its QE programme – if not today then soon. Which means that gold is going to struggle to break from the bearish trend that has now seen it lose 23 percent of its dollar price this year.
Gold is going to continue to have a tough time in the run-up to the FOMC press conference following its two-day meeting, which concludes today. Gold has lost its shine as a safe haven asset on the prospect of the Fed tapering its asset purchase programme, knocking $10bn off its asset purchase programme, down to $75bn, reducing the velocity at which it expands M2.
While the Fed has stressed that tapering isn’t tightening, relative tightening is important news in a market where perceptions count.
Gold enjoyed its sustained bull run to 2011 partly due to the Federal Reserve’s debasement of the dollar through continued monetary expansionist policies. With gold seen by many as the only real currency and store of value, investors flooded into the haven metal, which peaked above $1,900/oz. But as volatility dropped, and investors faced with record low bond yields went in search of returns, they sold off gold and returned to riskier assets.
There of course remains the possibility that Ben Benanke will hold fire on any tapering of “QE Infinity”, taking the view that the US recovery is still too fragile to risk derailing by removing the cheap cash upon which markets have grown to depend. If this happens today, expect to see some short term gains in gold. But the fact of the matter is that the Fed will reduce its QE programme – if not today then soon. Which means that gold is going to struggle to break from the bearish trend that has now seen it lose 23 percent of its dollar price this year.