Ben Bernanke will be stepping down in late January, most likely giving way for Janet Yellen to take his place as Chairperson of the Federal Reserve. Bernanke was known for a rather loose monetary policy, which is seen by an ongoing quantitative easing program that’s still in place. The big question on most investors’ minds has been, “when will tapering actually take place?” As the torch is passed in early 2014, many gold investors are curious to know how Yellen’s actions will affect Fed policies, which will ultimately have an effect on gold.
Yellen has made it clear that she does not want to rattle any cages when she steps into her appointment. The economy still has a ways to come before the Federal Reserve will likely allow for tapering to take place. This may be extended even further, according to Dave Meger, an experienced director of metals trading. “She seems to error on the side of extending policy too long, as opposed to unwinding it before its time.”
If Meger is correct, we may not see tapering until the spring of 2014. As long as this loose monetary policy is in place, conditions should remain favorable for gold. He continued by saying, “Several days ago, the market was wrangling with concern about the possibility of a December taper. It now seems like that December taper is off the table. This puts us, once again, into next year, before the market needs to be concerned about the rollback of the Fed’s stimulus program.”
Back to Business as Usual
Now that Yellen had made it clear she doesn’t wish to make any massive changes moving forward, it may be back to business as usual for the gold market. This means investors can expect gold to respond in much the way it typically does to unemployment reports and other economic data. When economic and political turmoil is brewing – gold tends to shine. When positive economic data is reported – gold tends to dip lower. This back and forth has been seen through Bernanke’s term and will likely continue during Yellen’s.
As a whole, investors would be wise to keep an eye on the monthly job data reports. Physical demand does play a large part in gold’s future as well. With China set to take the number one position as the leader in gold consumption, there may be a shift in ongoing demand. Gold and silver bullion demand in the US is also at record highs. Overall, the gold market will continue to behave the way it always has. Just because a new player has arrived, it doesn’t mean the whole game will change.