US Fed Program Pleases Traders, Gold Expected To Fall

Gold bullion fell for a fourth consecutive day on Thursday following the announcement of the Federal Reserve’s financial plan for 2014. In her first meeting with the Federal Open Markets Committee (FOMC), chairwoman of the US central bank, Janet Yellen explained her intention to end the QE stimulus in autumn and increase benchmark interest rates six months later.

The news was met with delight on the trade floor as gold holders shed their bullion in favour of US equities.  Gold drop to its lowest spot price for six months, before recovering to $1330.79 by 1800 GMT. It had started the day at £1330.60.

But the FED’s plan shows promising signs that the US and therefore the global economy is picking up. Investors can look to a more rewarding financial future, particularly if precious metals continue to fall. Goldman Sachs have earmarked gold prices to fall as low as $1000 an ounce, although so far this year analyst prediction have been way off the mark!

A recent history of gold bullion prices

Before the 2007 housing bubble burst, when the economy appeared strong, gold prices weighed in at a little over $700 an ounce. Once the banking crisis took hold gold rallied 70% to an all-time high of $1825.97 in August 2011. They hold their ground above the $1600 pressure point before falling to 38% in 2013.

Analysts had predicted priced would fall to an average of $1220 in 2014, with some analysts predicting spot prices will close in on the $1000 an ounce mark. Some speculators still think the precious metals market will collapse, although it seems unlikely given the renewed tensions between Russia and the US.

However, as market sentiment returns to equities and the Fed has pencilled in the return of higher interest rates precious metal prices will steadily decline. It remains to be seen what happens on a political front between now and March 2015 when positive interest rates are scheduled to come back in, but all being well the value of gold will be very attractive to buyers.

What next for gold?

Despite the financial future looking brighter than it has since 2007, it will take time for the dust to settle. As the US central bank continues to taper its QE stimulus, investors will return to the US market which will inevitably effect emerging markets.

Needless to say the stock markets will be particularly volatile until economies find some stability, thus gold and silver prices will rise and fall. Providing politicians can avoid any conflicts precious metals will fall more than they rise, but given its safe haven stability to hedge against riskier investments, it is unlikely gold will be allowed to drop too far – particularly as analysts are more than well aware of the looming credit crisis.

The US debt now stands at over $17.5 trillion and increases $2.80bn a day. China is also in debt. Although nobody knows the exact figure, it is estimated to be in the region of $2 trillion. Given China and the US are the world’s two biggest economies a collapse of either economy will be a disaster. One of the few ways to protect your financial future when the ceiling does come down is by investing in gold bullion whilst prices are low!