The SPDR Gold Trust (GLD) fell $1.30 to $120.15 ahead of the Fed decision this afternoon as the price of gold declined $12.31 to $1,228.54 per ounce Wednesday morning. The GLD, which acts as proxy for the gold price, began the week with a sharp sell-off to $120.39, but rebounded to $121.45 per share on Tuesday. At $120.15 the GLD is 2.7% below its all-time high of $123.50 per ounce - reached last week - and remains higher by 1.1% in June and 12.0% year-to-date.
As the gold price has continued to outperform stocks and cyclical commodities in 2010, investors have poured money into the GLD, the largest gold ETF. Yesterday the SPDR Gold Trust reported that physical gold holdings - which back the GLD - rose 5.17 tonnes to a record 1,313.14, bringing the total dollar value of gold holdings in the GLD to approximately $52.2 billion.
Today’s Fed decision will be announced at 2:15pm EST, and concludes a two-day meeting of the Federal Open Market Committee (FOMC). Chairman Ben Bernanke and the Federal Reserve are widely expected to reiterate the same dovish message they have sent throughout the past several years - that the challenging economic environment requires continued use of easy monetary policies and near-zero interest rates.
While several parties emerged in March and April of this year calling for the Fed to begin to normalize monetary policy, the substantial correction in financial markets in May amid the European sovereign debt crisis has substantially quieted this crowd. Given the significant decline in the euro currency against the U.S. dollar, higher interest rates in the U.S. would further pressure the euro and exacerbate the challenges facing many European nations.
In addition to the problems overseas, another important factor influencing the Fed decision is the fact that the U.S. economy has shown many signs of stagnation in recent weeks. This morning’s disappointing new home sales report was the latest in a series of worse than expected economic data that suggest the economic recovery is stalling out. As a result, the Fed decision this afternoon is likely to contain similar dovish language from “Helicopter Ben.”
The Fed’s easy monetary policies has been one of the primary driving factors behind the advance of the gold price and GLD in recent years, as the monetary spigots remain wide open to resuscitate the struggling U.S. economy. While a considerable amount of economic data has noticeably improved since the depths of early 2009, this has largely been the result of unprecedented government intervention. Today’s Fed decision is likely to therefore be a further catalyst for long-term appreciation in the gold price and GLD.
