Daily Nugget: Volatility In Gold Price Ahead Of FOMC Minutes

There is likely to be some short-term volatility in the gold price today ahead of the release of the October FOMC minutes, however it is unlikely to affect medium-term moves.

Traders will be scrutinising the report for any clues over the forthcoming Fed policy decisions, however analysts believe that the impact of the minutes will have a dampened impact following Janet Yellen’s testimony last week.

Whilst signs of a December taper will be hunted for, they will be possibly be elusive, partly as Bernanke will be unlikely to dramatically change monetary policy in his last month. A January taper may also be unlikely as Yellen assesses the Fed’s monetary policy.

Given the change in Fed Chairperson, the events since the last FOMC meeting and the improved data readings, gold market speculators are seemingly hesitant to be too aggressive in their gold trades prior to seeing exactly what the FOMC plan to do. The market is, however, hypersensitive to any hints or suggestions that tapering may happen earlier than expected.

The view that tapering is bearish for gold is somewhat short-sighted. It may well be initially, but in the long-term it will be bullish. Tapering indicates the economy is getting better, which suggests disinflation is no longer a worry, however this paves the way for inflation – a positive environment for gold.

Obsessed with tapering

Yesterday the Organization for Economic Cooperation and Development reported its surprise at the marketplace’s obsession with the fed’s possible decision to taper. I believe this is just because market participants’ have little else to focus their attentions on and instead turn their attention to the central bank responsible for the ongoing currency wars.

The organisation also reported yesterday that their major focus of concern has shifted from the EU and its sovereign debt problems to the U.S. and its fiscal and budget problems.

Last night current Fed Chairman, Ben Bernanke, gave a speech in which defended the Federal Reserve’s policies during his eight-year tenure. He also indicated that the economy is not where the Fed wants it to be and “consequently, it may be some time before monetary policy returns to more normal settings.”

Physical gold market sentiment

Late last week the World Gold Council’s (WGC) latest report showed strong physical gold demand across the Middle East and Asia. Together they accounted for 90% of physical gold demand inQ3. However, reports coming out of both China and India point towards a weakening, or slack in demand, in recent weeks.

It seems that whilst those participating in the physical gold-market are happy to buy as the price corrects, they’re unwilling to buy as it rises. A pop up above $1,300 is likely to create a change in the current sentiment.

FCA to investigate the gold price

The big news in the gold market today is that the UK’s Financial Conduct Authority (FCA) is looking at ‘the possible manipulation of gold price benchmarks’ as part of its ongoing investigation into key financial rates. Whilst it is yet to be confirmed, it is understood that the study will focus on one of London’s gold benchmarks.