Gold News & Info

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— In a day of volatile trading, gold closed the Comex session with a gain of 0.4% before dropping nearly 1% in electronic trade after the Fed announced a $10 billion-per-month reduction in quantitative easing to begin in January. Citing improvements in the labor market and overall economic activity, the central bank will cut $5 billion from its monthly purchases of both mortgage-backed securities, down to $35 billion, and long-term Treasury securities, down to $40 billion.

Despite the taper, gold initially gained on the dovish language of Fed statement, indicating that reductions in QE had largely been priced-in already. The dollar then surged and U.S. equities began to rally in earnest, pressuring gold to as low as $1,218. QE has supported higher gold prices by devaluing the dollar and increasing the risk of long-term inflation. A rising dollar weighs on the gold price by making the metal more expensive to holders of other currencies.

To reassure the markets, the Fed statement made it clear that monetary policy will remain "highly accommodative" for a very long time and that "asset purchase are not on a preset course," meaning QE could be held at the new levels or even increased, depending on data. In a departure from previous statements, the Fed also said interest rates will remain near zero until unemployment is "well-past 6.5%." This new stance suggests that negative real interest rates could be the norm for even longer than previous expected, which would be positive for gold.

The Dow and S&P 500 jumped around 1.8% to new record highs on the Fed's optimistic tone about the economy, while the other precious metals tracked lower. Silver initially closed with the 1.1% gain before dropping nearly 2% after hours. Platinum and palladium edged down less than 0.2% at the close before falling another 0.3% and 0.1%, respectively, after hours.

At the Comex close: February gold gained $4.90 to $1,235; March silver rose 22 cents to $20.06; January platinum dipped $1.90 to $1,342.70; and March palladium slipped $1.60, to $699.45 an ounce.