This afternoon, we will get the policy statement from the most anticipated FOMC meeting since the taper to the Fed’s $85 billion a month bond-buying scheme was announced. If everything goes to schedule, the Federal Reserve Open Market Committee will announce the end of QE3, which had been throttled down to $15 billion a month.
However, there are many traders and speculators banking on a continuation of what some call “money printing,” due to the dire economic conditions Western Europe finds itself in. Even if the purchases of mortgage-backed securities (the toxic loans the banks made, and the Fed is buying at book value) and bonds ends, there is disagreement among Fed officials whether the resulting $4 trillion balance sheet should be allowed to naturally shrink as the bonds mature, or should the Fed take the money and buy more.
Stocks are up globally on sentiment that the Fed will “do the right thing.” Wall St. opened slightly in the green, but the Nasdaq was pulled down by a falling Facebook share price. The S&P saw a little help this morning, as a reversal in falling crude oil prices lifted energy sector stocks.
Spot gold eased slightly overnight, suffering a drop in early New York trading that was mostly erased in an hour. Silver was steady overnight, resuming an extremely tight range in Asia and Europe. The only real market movement is happening in US trading. Platinum is steady, and palladium is trading just a shade higher than Monday’s New York close.
Yesterday in the Markets
Stocks saw healthy gains Monday, with the Dow recovering the 17.000 level. Treasuries were a bit softer, with the yield on the 10-year T-note gaining 4 basis points to close at 2.30%. The dollar closed barely in the red, down 1/10 of 1%.
Gold and silver etched slight gains, with gold up $2.70 to $1,227.80, and silver up $0.08 to $17.20. The PGMS gained over 1% yesterday, with platinum closing up $13 to $1,265, and palladium up $9 to $790.
Economic News Affecting Gold
The big news today is, of course, the Fed. If they do the unexpected and extend QE due to the recession in Europe and fears the European deflation will spread to the US, watch for the dollar to drop precipitously, and gold to get a boost.
Whatever the “paper gold” speculators think, investors who believe in physical gold are still buying. October sales of American Gold Eagle bullion coins from the US Mint are about to break the 60,000 oz mark. Sales so far for America’s official gold bullion coin are at 59,500 oz, edging out September’s 58,000 to become the second-strongest month this year for Gold Eagle sales.
India is in the game as well this month, as gold sales were up 25% for Dhanteras (the first day of the Diwali festival.)
Geopolitical News Affecting Gold
Sanctions continue against Russia, Russian counter-sanctions continue against the EU, while Ukraine tries to piece together a shattered economy as fighting continues in the eastern third of the country. Sanctions have notably harmed economies in both East and West, and the questions is, who will give up first? The former Warsaw Pact countries that now belong to the EU believe that punishing Russian aggression economically is better than military conflict, and must be maintained. Other nations, who were protected by the US during the Cold War, are more worried about economic damage to their own countries.
Putin has successfully rallied the Russian public behind him, casting the conflict over Ukraine as disrespect and bullying by the West. Russia is taking a page from China’s strategic economic game plan, and is rapidly building up gold reserves. Russia bought 1.2 million oz of gold this month, the largest monthly purchase since the Russian government declared sovereign default in 1998.
Fireworks start at 2pm Eastern with the release of the FOMC policy statement. Thursday brings us a ton of important economic reports. The Bank of Japan policy statement; unemployment in Germany and first-time jobless claims in the US; US GDP; and consumer price indices from Japan and Germany.
Fed Chairman Janet Yellen is scheduled to speak at a diversity conference in Washington DC at 9am Thursday, where she will doubtless perform damage control if the markets do not like the FOMC statement today.