Geojit Comtrade's update on bullion ahead of FOMC meeting
Even as the US unemployment rate is too high and inflation too low, various reports suggest that it is the time for the US Federal Reserve to end its prevailing USD85 billion monthly bond buying program, also know as quantitative easing 3 (QE3). It is widely anticipated that the Fed officials may consider tapering the number of bonds that it buys every month, perhaps to USD75 billion as a preface to winding up the program completely by the next year.
Although the US central bank has put no end date on the program, as per signals provided by the policy makers rollback of QE3 will depend upon the revival of the economy. The recent bunch of economic releases from the country has shown that the world’s largest economy is on the path of recovery. At the same time, many analysts also expect that the Federal Reserve will hold off announcing the first taper until March next year.
Traders have been trying to game the odds of QE3 tapering, literally all year long, driving into some sharp market moves. Therefore, the Federal Open Market Committee’s decisions due out today (December 18) are likely to be a major market shaking event.
The US Federal Reserve has scheduled the rate decision announcement after mid-night, at 12.30 am IST, followed by summary of economic projections. However, the post announcement comments from the Federal Reserve Chairman in Press Conference at Washington would be the key event in which any comments over withdrawal of economic stimulus measures are anticipated. Volatility may be seen in Dollar Index during this time and appropriate moves would be seen in INR by tomorrow. Any changes in rupee and Dollar Index will have an adequate impact over the commodities especially in bullion. However, impact on base metals and energy complex are expected to be limited as compared to bullion.
Bullion:Moves in gold and silver during the year 2013 have largely backed by expectations weather the US central bank would end its economic stimulus program or not. Gold had gained over 70 per cent from December 2008 to September 2011 as the Fed pumped more than USD2 trillion into the financial system, boosting the metal’s inflation hedge appeal.
Gold in overseas market hits an all time high of USD1920. 94 in September 2011 and now, prices are clinging near USD1245 an ounce, down by more than 36 per cent. Investment interest in gold has also been feeble with the holdings of SPDR Gold Trust, the biggest bullion backed ETF, currently hovering near to the lowest level since 2009.
In short, winding up of economic stimulus can spark a sharp sell off in precious metals and most of the market participators expect gold and silver to re-test its yearly lows.
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