Gold prices appear to have found their new balance around $1270 an ounce – the mid-point between its two previous price points. Prices plummeted in early trading on Wednesday as the Asian market cashed in on gains, but rebounded strongly by midday in Europe.
Things could change before trading closes for the day however as traders wait for the Federal Open Market Committee (FOMC) to deliver their plans for lifting interest rates in the US. Janet Yellen, chair of the Federal Reserve is expected to deliver the verdict around 2pm EST.
For the most part, economic data has been positive of late, and although the consumer price index enjoyed its largest increase in more than a year on Tuesday, it made little impact on gold prices. Instead, the threat of rising inflation is weighing prices down.
The strengthening dollar is also likely to drive gold prices down if, as expected, the Fed continue tapering their bond buying stimulus. However, with the violence in Iraq escalating, and the tense relations with Ukraine and Russia ongoing, some analysts think the precious metals market has already hit its summer lows.
What do market watchers expect from FOMC?
There is a general consensus among economists that the FOMC will taper a further $10 billion from its quantitative easing program as they move to dovetail bond buying to an end in autumn this year.
Given economic data is giving steady signs of a full global recovery in all the major economies, there is little reason for the Fed to change their six-month long stance. The news traders are eagerly waiting is the decision on interest rates.
Whilst it is likely that the Fed will lower their forecasts on GDP and unemployment, it is widely expected inflation will go up – leading to speculation that the central bank will increase interest rates in the first half of 2015.
If market watchers have predicted the outcome correctly, we may see gold prices lowered somewhat, but because of geopolitical conflicts there is too much of a risk to allow precious metals turn too bearish.
Cause for optimism
The is a sentiment that investors and business owners have a cause for optimism, but the Fed will take a cautious approach to balance assets rather take risks that may slow down the market rather than nurturing growth.
Most analysts agree this is the right thing to do, although still advise investors to add gold to their investment portfolio rather than sell equities. US-backed assets are over-priced in the current market and will not deliver long-term yields in the way gold will.
Precious metals always perform well during times of financial and political strife and in the long-term promises an excellent return on interest – especially when the US debt ceiling collapses.
In the meantime, investors can enjoy a fruitful period of a strong economic climate in which commodities and certain equitable assets will recover handsome gains. Otherwise, play it safe and buy gold bullion to gradually build up your stocks in anticipation of the next stock market failure.