Precious metals took an interesting turn of events during the week, with gold dropping close to 6% in the past couple of days. This comes in response to news on the Federal Reserve’s meeting this week. Here is a look at this recent turn of events and the outlook for gold.
Bernanke’s Comments at the Federal Reserve Meeting
The biggest reason the gold market responded in its present manner is due to Ben Bernanke, Chairman of the Federal Reserve, and his comments on the potential slowing down of the economic stimulus program. He mentioned the Fed would begin tapering the bond buying program if economic data continues to improve. Therefore any changes to the quantitative easing program are contingent upon U.S. jobs data showing continued signs of improvement in the coming months.
What’s odd about the recent turn of events is that nothing has actually happened yet. The Fed is still planning on continuing the stimulus program as Bernanke stated “policy is not pre-determined.” This gives an impression that the gold market is reacting to potentialities rather than certainties.
All eyes will be on the next set of U.S. jobs data and the next Federal Reserve meeting. News from these two sources will have an ongoing effect on precious metals for some months ahead. However, there are two positive points to consider as well. James Steel, a well-respected commodities analyst at HSBC, pointed out that much of the major gold Electronic-Traded Fund selloff has slowed down and may help the price of gold moving forward.
Secondly, demand from India could increase again come August. This is when the wedding and festival season will resume and be in full swing. Demand for gold jewelry during these times should help to temper future lulls during the latter part of the summer.
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