As expected, the FOMC decided not to taper last night, stating that despite signs of ‘underlying strength’ further evidence was needed that the economy was improving. The statement was seen as dovish, therefore good for the gold price, but this did not stop the ‘buy-the rumour, sell-the fact’ activity following the announcement.
Taking into account the extent of the federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy.
This served to fuel speculation once again thatthe Fed will taper at some point, and a Bloomberg survey of analysts expects this will come about at the FOMC’s March meeting. But then, this is the same group who believed tapering would happen in September. Lo’ and behold they were wrong, mainly because you cannot predict such things. The statement does show that there is still not a major change in general market thinking. Despite a suggestion that growth is ‘moderate’ there has been a slow in housing and official inflation remains below target. Further, October’s ADP national employment report did not make light-reading yesterday, just 130,000 non-farm jobs were added in October, as opposed a forecast rise of 150,000.
Many analysts were at least looking for an indication that QE would perhaps be extended or that immediate tapering would be put to one side, however the minimal change in language gave traders little else to do other than liquidate their gold positions on the back of the announcement.
The gold price had risen to $1,360/oz ahead of the meeting, hence the profit taking following the decision to maintain its monthly $85 billion in asset purchases.
Concerns over a ‘cash crunch’ in China have prompted gold price on the SGE to trend lower, earlier this week gold was trading at a discount to London prices. We are now into the third day of gold retreat following its one-month high, the price of gold had risen around 8% in the run-up to October 15th. Falling Shanghai premiums and concerns over physical demand in India may see the gold price fall further before triggering higher demand.
Dubai Gold and Commodities Exchange will list a spot gold contract in the second quarter of 2014. The move comes as demand for gold investment increases. In the last six to ten years demand for bullion has grown eightfold in Dubai, according to CEO Gary Anderson. According to the Dubai Multi Commodities Centre, around 25% of the global physical gold trade passes through Dubai.
Data from the US Geological Survey released yesterday showed US gold mine production rose in July by 3% whilst Silver’s production was up 10% from the year before.