Gold Price Dips Ahead of Bernanke, FOMC

GOLD PRICE NEWS – The gold price declined $12.10 to $1,654.75 per ounce Wednesday morning ahead of today’s conclusion of the two-day Federal Open Market Committee (FOMC) meeting.  Gold prices dipped on speculation that Chairman Bernanke and the FOMC will not deliver a plan for a new round of quantitative easing (QE), nor will they allude to additional asset purchases in the coming months.  Stronger than expected economic data has quelled rumors that Bernanke was set to proceed with QE3.

On Tuesday, the gold price dropped $11.53, or 0.7%, to $1,666.83 per ounce amid strength in the U.S. dollar.  After reaching a six-week high on Monday, the price of gold backed off as traders used the dollar’s advance to take profits in the yellow metal.  The SPDR Gold Trust (GLD), the world’s most liquid gold price proxy, settled lower by $1.15 at $162.01 per share.  The GLD slipped even lower Wednesday morning, falling to $160.92.

Silver retreated alongside the gold price, falling $0.21 to $31.84 per ounce after sinking nearly 1% yesterday.  Other precious metals also moved lower with platinum futures sliding $3.20 to $1,549 per ounce and palladium falling $5.25 to $675.10 per ounce.  As for cyclical commodities, crude oil dropped 0.5% to $98.37 per barrel while copper declined 1% to $3.77 per pound.

Gold shares were pressured by the gold price sell-off yesterday, with the Market Vectors Gold Miners ETF falling $1.19 to $51.82 per share.  In doing so, the GDX reached its lowest level since December 30, 2011 and cut its year-to-date gain to 0.8%.  Notable decliners included AngloGold Ashanti (AU), Eldorado Gold (EGO), and IAMGOLD (IAG) – which retreated 1.6%, 2.3%, and 2.0%, respectively.

Commenting on yesterday’s gold price weakness, VTB Capital analyst Andrey Kryuchenkov stated that “Gold has come off a bit in this week in the absence of any kind of physical activity … There really is a lack of direction as people are still cautious after the December sell-off.”

Looking ahead to later today, investors will be keeping a close eye on the Federal Reserve and Chairman Ben Bernanke.  At the conclusion of the today’s Fed meeting, the U.S. central bank will for the first time publish interest rate forecasts of each FOMC member.  The measure is intended to provide the markets with additional insight into the future course of monetary policy.

With regard to the likelihood of a third round of quantitative easing (QE3) being announced this afternoon, economists at Bank of America/Merrill Lynch wrote in a note to clients that “We do not expect the FOMC to strongly signal QE3.”  As for when the Fed may raise rates, the firm noted that “The market is currently pricing in the first rate hike to begin February 2014…(however) we think the Fed will not be as aggressive,” with the initial increase occurring in the third quarter of 2014.

With the majority of economists not expecting the Fed to launch QE3 at today’s meeting, the gold price is likely to be influenced instead by the language of the FOMC statement, the release of the interest rate forecasts, and Ben Bernanke’s third-ever post-FOMC press conference.  If the Fed reiterates the need for extensive use of accommodative monetary policies the gold price is likely to remain well supported, while a more hawkish tone could put pressure the yellow metal.