Smart Traders Smart Solutions In previous years, the FOMC’s expanding monetary policy (e.g. lowering interest rates) has raised the demand for gold, which supposes to protect its investors from the potential devaluation of the U.S dollar. Therefore, the FOMC’s recent decisions to cut down its asset purchase program should have pull down the price of gold. In reality, gold continues to recover. Does this mean, the FOMC’s policy have little effect on the gold market? Also, if not the FOMC, what could keep the price of gold rising? The recent rally of gold price has also reflected in the rise in gold ETFs such as SPDR Gold (NYSEMKT: GLD) and iShares Gold Trust (NYSEMKT: IAU): SPDR Gold added nearly 10% to its value since the beginning of the year. iShares Gold Trust rose by a similar rate. Due to the increase in the price of gold, these ETFs demand grew during February: iShares Gold’s holdings rose by 1.5% during the month; SPDR Gold’s gold holdings increased by 1.3%. But could this rally slowdown if the FOMC tapers again its long term securities purchase program in its next meeting at the end of March? Gold and the FOMC’s policy The FOMC tapered quantitative easing 3 from $85 billion of long term securities per month to $65 billon per month as of February within two meetings. This decision, however, didn’t slow down the recent recovery of the price of gold. As you can see, the decision of the FOMC back in 2013 to start QE3 increased the U.S money base, but gold price continued to fall. Therefore, this finding suggests that the FOMC’s plan to taper QE3 will also have little adverse effect on the price of gold. For now, this theory seems to hold up and the two tapering decisions didn’t curb the recovery of gold. Even though the FOMC’s asset purchase program may not have a strong effect on the price of gold, the progress of the U.S economy continues to indirectly affect the demand for gold as an investment. In the past couple of months, several reports showed little progress in the U.S economy including in the housing, manufacturing and labor markets. E.g. fewer than 200,000 jobs were added in the past couple of months, and the U.S GDP grew by only 2.4% in the fourth quarter of 2013 — in comparison in the previous quarter the GDP grew by 4.1%. If the U.S economy slows down, it could shift investors towards safe haven investments such as gold and U.S treasuries bonds. The U.S dollar is another factor that could affect the path of gold price. Ridzuan Chief Executive Officer Ridzuan Gold Sms Signals
Posted on: Fri, 14 Mar 2014 09:01:33 +0000
Trending Topics
Recently Viewed Topics
© 2015