Gold and silver took huge hits this week in the wake of a monetary policy meeting that took place in the United States. Both metals lost unprecedented amounts of value despite the meeting itself yielding no major policy shifts. Friday saw the metals bounce back, but only by a very very small margin. Hopefully enough bargain hunters hit the market to alleviate some of the selling pressure we have been seeing, but even a massive increase in physical demand will not likely turn things around for precious metals completely.
FOMC Meeting
The Federal Open Market Committee, known as the FOMC, is the body of the US Federal Reserve who is in charge of voting on and deciding monetary policy in the country. Since the worldwide recession that hit back in 2008, the FOMC has instituted and stood by a policy known as Quantitative Easing. This policy involves the government buying massive quantities of bonds every month in order to pump money into the economy. The excess amount of funds that are entering the economy because of QE will effectively bring down the value of the US Dollar and thus improve exports. An increased number of exports means that the US economy would be boosted significantly. Since the institution of QE, it is safe to say that the US economy has recovered more so than most other prominent economies of the world.
The FOMC meeting that began this past Tuesday was supposed to decide what happens to monetary policy in the US going forward. The outcome of the meeting was pretty much no outcome at all as the FOMC decided that it will make no changes to QE. This inaction helped precious metals because a decision that ended QE would have been absolutely devastating.
Later Effects
Though the FOMC meeting itself did not make any changes to current monetary policy in the United States, Ben Bernanke, Fed Chairman, alluded to the fact that Fed Reserve bond buying may be wound down sometime soon. Market experts followed up this meeting by speculating that by this time next year, QE may be a thing of the past. Because of this speculation, the market is now convinced that QE’s existence is only temporary and thus have lost interest in safe-haven assets such as gold and silver.
Because the popular thought is that QE will be done away with and the US Dollar will gain in value significantly, the only viable option for investors is to sell. This is the reason why gold lost almost $100 in one day and silver lost over $2 in the same day.
Weekly Move
Gold started the week at $1,390 and by the end of the day Friday it has lost almost 100 dollar in value and is now sitting at $1,295.
Silver started the week a few cents over $22, and by closing time on Friday it was sitting at $20.09.