22-Jan (USAGOLD) — Gold remains narrowly confined in the lower half of yesterday’s range, amid some uncertainty surrounding the likelihood of further tapering at the next FOMC meeting. That meeting will take place next week on January 28-29. On the heels of the terrible December nonfarm payrolls report, there was speculation that there would be no additional tapering of asset purchases until there was a reasonable surety that the employment picture in the U.S. wasn’t starting to deteriorate anew. However, Jon Hilsenrath wrote an article on Monday suggesting that the Fed would cut asset purchases by another $10 bln per month at this next FOMC meeting, despite the bad NFP print. This may leave the gold market waiting and wondering until the Fed makes their policy statement next Wednesday. Quite frankly, I don’t think it matters one way or another at this point. Incremental cuts to asset purchases are pretty baked into the cake at this point, regardless of the realities of employment and price risks that allegedly drive policy. I think that pretty much everyone would acknowledge that employment remains quite weak, and the only reason the unemployment rate has dropped in recent months is due to the ongoing erosion of the labor-force participation rate. Certainly, inflation — at least by official measures — is not a risk. If the Fed leaves asset purchases at the present pace of $75 bln for a month or two, that may be beneficial to gold in the short-term. However, if they continue to taper, it becomes increasingly obvious that they are doing so primarily because QE just hasn’t been effective. Such a capitulation, particularly if it results in heightened growth risks, would likely reignite safe-haven interest for physical gold. If that happens, where is the physical gold demanded going to come from? There is plenty of evidence that much of the gold coming out of investors’ hands in the west has moved to strong hands in the east, and I doubt even a much higher price will reverse the flow.
Posted on: Thu, 23 Jan 2014 10:30:57 +0000
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