Will The Fed Send Gold Down?

This morning the gold price remains near its lowest level in nearly four-weeks as markets await Bernanke’s announcement today. Gold on COMEX was trading at three-week lows yesterday, bullion for August delivery was little changed at $1,365.60/oz whilst on the MCX it was firmer given the weak rupee.

India’s gold import numbers for June are expected to be as low as 40 tonnes, this is down even on months prior to the gold price drop. The country’s trade deficit was at its widest in May, the low gold imports for this month will leave many believing gold duties should remain. I personally believe that this drop in the ‘official’ price of those buying gold is both temporary and not a true reflection, and we will no doubt see smuggling figures continue to climb.

Holdings in the SPDR Gold Trust ETF (GLD) fell yesterday by a further 0.2%, to a four-year low. Redemptions in gold-backed ETFs have slowed, according to Barclays’ data, to 15 tonnes in the first half of June compared to 48 tonnes in the first half of May. Meanwhile in China, demand for physical gold continues, putting the new ETFs in good stead.

In anticipation of lower gold prices, news sites in the Middle East are reporting a slowdown in gold demand in Dubai. High-end retail buyers are purportedly slowing down buying as they await further poor sentiment in the market, expecting to see the price pushed lower.

FOMC - clear as mud

No change in rate is expected from the FOMC this morning, however markets will be hanging on Bernanke's every word, desperate to grab any clue as to what the FOMC have up their sleeve. The Federal Reserve is also due to release FOMC participants’ forecasts for employment, growth, inflation and interest rates.

There appears to be a significant amount of nervousness surrounding markets thanks to the lack of clarity offered by Bernanke in recent speeches and comments to the press.

In what is supposed to be a transparent entity, the FOMC appear to be taking some pleasure in keeping the markets guessing. Bernanke, even if he gives an indication of what the FOMC’s intentions are, will be quick to remind markets of just how close his finger is to the print button. Currently inflation is ‘officially’ at a 53 year low but unemployment is not down to where they would like, both of which give Bernanke room to justify further QE, or at least not start tapering off.

Please remember though, to watch what they do, not what they say. Even if Bernanke announces that they will definitely taper off from October (much rumoured, and he won’t), they are still printing money now, in the next few months and after October.

According to TDS Securities, clearly gold will suffer (short-medium term) once the Fed do begin to taper off, since it will be seen as a signal to many that the economic crisis has been dealt with, never to be mentioned again. Prior to this, gold is likely to climb above $1.40.

The Social Gold Mine
Briefly mentioned in the Social Gold Mine yesterday, legendary investor Jim Rogers has been discussing his thoughts on gold. Whilst he did admit that he’s not buying any gold at present he did say that he wasn’t selling either. Mr. Rogers has been calling for a correction in gold for some time and he sees this year as the year, he doesn’t expect the correction phase to end any time soon.