Fed Actions Decisive Factor in Determining Gold Future

on Jun 2, 2012

The economic policies and actions of the US Federal Reserve will remain key drivers in determining the future of the gold market, stated an article in MarketWatch. The Wall Street Journal’s online publication quoted Gold Newsletter editor Brien Lundin, who noted that the latest Federal Open Market Committee policy statement and Chairman Ben Bernanke’s news conference “provided little fodder for gold bulls or bears.”

“The Fed, at this point, is all-important to the gold market,” Lundin added. “For gold to begin and maintain a major new rally in advance of the fall elections, we will have to see some indications of further Fed easing.”
MarketWatch said that following the record high price of $1,900 an ounce in August 2011, gold figures have shown a less-than-stellar performance of late, with Fed actions playing a big role in the dynamic of the market. On April 25th, the Fed released their latest monetary policy statement, indicating that the US economy has seen a moderate expansion.!m[](/uploads/story/22/thumbs/chart_of_gold_inline.png)

“Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance,” said Fed officials in a press release. “Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable,” they added.

The Fed Committee also reiterated its commitment to support stronger economic recovery and to help ensure that over time the inflation rate remains consistent with the Fed’s dual mandate, which is aimed at fostering long -term growth of the monetary and credit aggregates while supporting the economy’s long run potential to increase production, maintaining optimal employment levels, stable prices and moderate long-term interest rates. For the purpose, the Committee vowed to keep the target range for the federal funds rate at 0 to 1/4 percent expecting that economic conditions are likely to warrant very low levels for the federal funds rate in the next two years.

Immediately after the Fed’s policy statement, gold futures declined $1.50 from a day earlier. At the same time, MarketWatch noted, prices took a dip by nearly $19, reaching a low of $1,625.
MarketWatch reminded that on April 4, right after the Fed released a statement denying further monetary stimulus, the gold market reached a 12-week low, sinking nearly $60 an ounce in a single session.

“If the Fed were to begin pulling back the reins on easing, it would suggest that the US economy has really started to make significant strides towards a strong and sustained recovery,” said Rick Trotman, senior research analyst at MLV & Co. A strong economy could “translate into a stronger currency, which has historically come at a detriment to [dollar-denominated] gold.”
Harvey Rowen, financial advisor and head of California-based Starmont Asset Management, told MarketWatch: “When things are good, gold declines. When things are bad, gold soars. Right now, the world is unsettled, but not in dire straits, so gold is bouncing around $1,600-$1,700 and is likely stay there until things get better or worse.”
Rowen further asserted that a number of supportive factors indicate a bright future for the gold market. Among these are economic uncertainly, fears around possible inflation, a decline in the value of the U.S. dollar and political turmoil.
For investors seeking a good hedge to their investments, Rowen suggests buying a gold ETF like the SPDR Gold Trust (US:GLD). Another good option, he noted, are investments with performance that isn’t dependent solely on gold prices. These are funds, such as Fidelity Global Strategies (US:FDYSX), that include gold in their portfolios.
Mark O’Byrne, executive director of Irish bullion dealer GoldCore, offered a different kind of advice: “The safest way to own gold is to buy physical coins and bars and store them with the safest counterparties in the world. Normal investors should not attempt to trade the gold market and should avoid the risk of leverage.”
And Vedant Mimani, lead portfolio manager at the Florida-based Atyant Capital Global Opportunities Fund, told MarketWatch that investors may want to consider exposure to exchange-traded funds such as the Market Vectors ETF Gold Miners (US:GDX) and Market Vectors Junior Gold Miners ETF (US:GDXJ). He added that Gold Fields Ltd. (US:GFI), where his fund own stocks, “sits on one of the largest gold reserves in the world and currently pays a dividend of around 4 percent.”


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