Members of the Board of Governors of the Federal Open Market Committee (FOMC) began arriving early to the Eccles Building in Washington D.C. on the morning of Tuesday, October 23rd. The scheduled two-day meeting is an event that is closely followed by gold traders, but this particular FOMC meeting is taking place just weeks after a very significant event in terms of macroeconomics and money supply: QE3.
The ongoing third round of quantitative easing since the Great Recession and the second round of Operation Twist will likely have a greater effect on the commodities markets than the FOMC policy announcement that is due on Wednesday, October 24th at 12:30 PM EST. In the run-up to the FOMC meeting, gold and silver prices declined by 1.19 percent and 2.35 percent respectively. This was the result of a mostly sideways commodities market, with active traders not very optimistic about the long-term outlook of gold futures.
Bargain Hunters Made Their Move
Opportunistic and active traders mostly sat on the sidelines from October 15th to the 19th, but trading volumes spiked right after the markets opened on Monday. The U.S. dollar took a slight beating on the forex markets during the middle of the session, a move that drew in active gold traders looking for bargains left by the slow session of the previous week.
Before Monday, the previous trading sessions eroded significant value from gold prices, almost $30 at times. Institutional investors disappointed with the greenback’s performance and the lackluster earning reports of tech giants like Google once again looked at gold futures as flight-to-safety financial instruments. Speculators and bargain hunters also moved in, and as result of this renewed interest on gold the metal reversed its course.
By the end of trading session on Monday, gold futures contracts marked for December delivery had recouped 0.13 percent. That left bullion at a price of $1,726.30 per once, $2.3 higher than the closing price of last week. Satisfied with this outcome, traders looked to the Tuesday session and the FOMC meeting.
FOMC Expectations Low
The only consensus thus far from economists and market observers on the upcoming FOMC meeting is low on expectations of new developments. Traders have already accepted that QE3 and Operation Twist are probably the most significant announcements from the U.S. Fed this year. The FOMC announcement will likely deliver a positive tone due to housing improvement, but the same cannot be said of employment.
Two important items on the FOMC agenda are employment and the dreaded “fiscal cliff” that could bring a slew of Bush-era tax breaks to an end. The Governors will definitely talk about interest rates during the meeting, but they are not likely to move them this time around. Another issue that will certainly appear on the agenda is the language that the Fed will use to explain their policies.
The previous FOMC meeting may have injected a little too much positivity by making reference to low interest rates at least until 2015. What the Fed really wanted to say at that time was that the Governors would like to keep rates low as long as economic conditions call for them. The Governors do not want to sound like they are making a pledge.
The Bottom Line for Gold Traders
Any talk about future intervention by the Fed is bound to have a positive effect on the price of gold. The introduction of new stimulus plans is unlikely, and thus metal traders are not likely to react too sharply after the FOMC announcement on Wednesday
