Following the release of the economic forecast by the Federal Open Market Committee (FOMC) yesterday, U.S. Fed Chairman Ben Bernanke’s taper talk sent stocks and commodities tumbling. Maybe tumbling isn’t the right word…
Collapsing to near three-year lows, gold has dipped below $1,300 for the first time since the fall of 2010.
Prior to the Bernanke presser, the FOMC issued their revised economic update, which implied the economy was on the rise and unemployment rates were lower than previously forecasted through 2015. They also mapped out a plan for tapering, meaning that bond buying may be completely exhausted by the middle of next year.
Bernanke took the podium and said while nothing was imminent, if the FOMC forecast was correct, the pace of monthly purchases would be moderated and could end mid-2014. He also assured the markets that current buying would continue and lower interest rates would remain until unemployment fell lower than 6.5 percent or inflation increased above the long-term goal.
With economic optimism at hand, higher interest rates could be on the way, and gold is sensitive to interest rate moves. Gold also has a strong negative correlation with the USD, which should ultimately benefit from this tapered stimulus plan. At the same time, with a weak global economy and the possibility of continued crises in Europe and elsewhere in the emerging world, gold could again become the safe haven risk asset of choice.
As Bernanke spoke, though, the selling of Treasuries and other assets were taking place as his suggestions of a pullback on Quantitative Easing could begin later this year. As he tried to calm markets with his assessments, the selling was already in a freefall, and gold was one of the worst hit.
The trend has continued into today with many thinking the tapering could take place before the recovery is ready. Bernanke mentioned the plan is more like easing off the gas rather than hitting the brakes, but his words accelerated the action among markets.
After Bernanke’s press conference, the FOMC forecast and the falling rates among commodities, we would like to know your thoughts and plans for the future. Are you buying into what the Fed is saying?
For many investors, this is may be the perfect time to add to their position. Are you going to run for the hills, or add to your stack?
Let us know what you think in the comments below or on Facebook and Twitter today.
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