Gold Price Gains Ahead of Bernanke, FOMC

GOLD PRICE NEWS – The gold price climbed Wednesday ahead of the widely anticipated conclusion of the two-day Federal Open Market Committee (FOMC) meeting.  The price of gold advanced $8.50 to $1728.30 per ounce as traders and investors prepared for a dovish post-FOMC policy statement from Chairman Bernanke.  While a third round of quantitative easing may not be announced at today’s meeting, the Fed may prepare markets for an eventual resumption of the central bank’s asset purchase program.  The broader stock and commodity markets also rose ahead of the announcement.

On Tuesday, the gold price rebounded from steep losses earlier in the day to finish higher by $4.85, or 0.3%, at $1,719.78 per ounce.  The spot price of gold plunged as low as $1,682.50 in morning trading as news of a Greek referendum on its euro zone bailout package led to widespread liquidation in financial markets.  However, the gold price later bounced back alongside other precious metals as the U.S. dollar pared its gains against several of the world’s leading currencies.

Silver fared worse than the gold price yesterday, but also finished well above its intra-day low.  Gold’s sister precious metal slid to as low as $32.12, but later pared its losses to trade down $0.99 at $33.24 per ounce.  Silver followed gold higher early Wednesday, gaining 2.9% to $33.69 per ounce as measured by the front month futures contract on the COMEX.

Precious metals equities staged an impressive comeback alongside the price of gold and silver, but still ended in negative territory yesterday.  The Philadelphia Gold & Silver Index (XAU) recaptured its entire 5.1% intra-day decline before settling lower by just 0.9% at 199.34.  Notable gold producers finishing in the red included Gold Fields (GFI) and Newmont Mining (NEM) – which fell 1.4% and 1.8%, respectively.  Among silver shares, Coeur d’Alene Mines (CDE) dropped 1.5% and Hecla Mining (HL) retreated 3.4%.  Gold mining stocks rose early this morning on the back of higher gold prices.

Commenting on the outlook for the gold price, Barclays Capital analyst Suki Cooper stated that “From here, as we are in a seasonally strong period, the downside (in gold) should be supported. But the upside very much rests with the safe-haven interest. We still do expect that demand to materialise as Q4 progresses but in the near-term we would expect prices to be a bit choppy.”

While events in Europe dominated the headlines on Tuesday, this afternoon the attention will shift to Ben Bernanke and the Federal Reserve.  The Federal Open Market Committee (FOMC) is scheduled to release the statement from its latest monetary policy meeting at 2:15pm ET, followed by Bernanke’s second-ever, post-FOMC press conference.

Investors will be paying close attention for any clues on the potential for a third round of quantitative easing (QE3).  Although the majority of economists do not expect the Fed to launch QE3 yet, its chances over the next year have certainly increased in recent months.  Escalating sovereign debt turmoil in Europe, coupled with fears of a renewed recession in the U.S., has led to increased calls for a third round of asset purchases by the Fed.

In a recent note to clients, analysts at Bank of America Merrill Lynch predicted that the Federal Reserve is likely to launch QE3 in the summer of 2012.  The firm also contended the Bernanke-led Fed may alter the language in the FOMC statement to present a more dovish tone.  In either scenario, the gold price stands to be a prime beneficiary of any increase in the amount of accommodation provided by the U.S. central bank.