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Reaction to Fed Moves Give Market Pause as Support Grows for Bearish Stance

December 14, 2012 - Following a drop in gold price below the $1,700 per troy ounce level, investors appear to be consolidating their forecasts along with the metals.

U.S. gold futures for February delivery gained $1.20 to $1,698.00 per troy ounce in early trade on Friday as the spot price of gold dropped $0.80 to $1,697.00 per troy ounce. Comex silver for March delivery gained $0.225 to $32.565 per troy ounce. The outlook for both metals is a continued consolidation with mixed bias on Friday.

With gold looking closer to resistance on the downside than the upside and silver down for the third consecutive week, many analysts are looking at the market and deciphering the reasons for the action.

Today’s commodities note from Standard Bank read a lack of activity has kept precious metals largely unchanged this morning.

Ed Meir, analyst at brokerage INTL FC Stone, said bulls were making the argument that the central bank would remain easy, at least until 2015, helping provide an element of support for gold. He added that bears countered that there would not be any additional easing in the pipeline between now and 2015 and also pointed out that the Fed did outline specific targets at which point it would start shrinking its bloated balance sheet.

The Fed action of augmenting the current bond buying with an additional $45 billion on a monthly basis until the unemployment rate drops below 6.5 percent. This has placed some markets in a bit of a catch-22 as Federal stimulus bolsters the market but the closer the unemployment levels get to a 6.5 percent low the more the market will anticipate the removal of the Fed’s bond-buying.

Meir continues by saying no matter which side of the Fed argument one is on, he suspects that much of Thursday’s selling was also triggered by the fact that investors are becoming increasingly nervous about the lack of progress emanating from fiscal cliff talks.

The President met with House Speaker John Boehner yesterday but no agreement was reached.

Demand to buy gold in physical bullion form has seen a major resurgence in recent weeks according to Standard Bank’s proprietary Gold Physical Flows Index.

Sales at the U.S. Mint, while cooling slightly in the current week, broke records in November and the first week of December for gold and silver bullion.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org

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