Gold Market Reacts to Fed Posted by James Randolph on June 11, 2012
The gold market is again registering losses after the Federal Reserve again disappointed investors with no mention of a Quantitative Easing program in the imminent future. QE, the Federal stimulus program that has brought trillions of dollars into existence, has the added effect of boosting the gold price and is partially responsible for the protracted bull market.
The spot price of gold was hovering in the mid $1,500-range on Friday after continuing a downward streakin the past few weeks. Spot price stood at $1577.30 per troy ounce; down almost 1% from the $1589.15 per troy ounce spot price registered the previous day. In the futures market, the losses were more readily seen as gold futures contracts for August delivery down 2% in intraday trading at $1556.40.
Investors anticipate Quantitative Easing because the short-term stimulus bolsters almost everything on the market. The exception, of course, is the US dollar. Almost every time Fed Chairman Bernanke speaks, there is at least some kind of anticipation that he will mention stimulus or announce an official round of quantitative easing, whether or not it is rational. For the past year, investors have treated Bernanke’s each testimony and each appearance before the press as an opportunity to hear about the next round of quantitative easing.
A main trend that has developed in the past twelve to twenty-four months is a negative reaction in the gold market when there is no mention of stimulus. There is no fundamental or technical reason for this reaction; it is purely in response to the policy of the Federal Reserve.
Monetary policy always has been and continues to be a main driver in the price of gold. Now, however, with the presence of a persistent and pervasive easing in the system, monetary policy set forth by the central bank in the US is bound to have a direct impact in the gold market. The decrease in price is notable as a continuation of the consolidation occurring in gold and the market response to the Fed’s denial of stimulus.
The two factors will contribute to a decreased in price for the coming days with the possibility of a leveling off around mid-week. However, of course, should factors from other aspects of the gold market gain more noteworthy influence, the price of gold could swing on a temporary basis.