Gold and silver are posting moderate losses on Tuesday mostly thanks to technical selling after gold hit 5-week highs during the overnight hours. Despite today being the official first trading day of the week for Americans, the trading atmosphere in North America was mostly quiet thanks to a lack of fresh fundamental inputs.
For the next few days you can expect most investor and market watcher talk to revolve around the possibility of further tapering being initiated as a result of next week’s FOMC meeting.
Further Tapering Could Hamper Precious Metals’ Progress
Ever since gold fell to sub-$1,180 lows this past December the yellow metal has crawled its way back by almost $80. This progress was slowed down a bit today amid talks of further tapering being a possible outcome of next week’s FOMC meeting. If comments made last week by voting FOMC members have any basis in reality there is a strong possibility that we may see yet another reduction to Quantitative Easing. In fact, the two voting members who made statements last week both agreed that they would like to see QE completely done away with by the end of this year. Though it is not a guarantee that such a move (or combination of moves) will be made during this year, such moves would put heavy downward pressure on gold and silver.
The biggest determinant of whether or not QE continues to be reduced is the quality of economic data emitted from the United States. Recently, economic data has been upbeat and is more indicative of an economy that no longer requires intense QE, but it is far too early to tell if the world’s largest economy can be successful this year if the safe-haven QE is ripped from under its feet. With that being said, it would not come as a surprise if QE is reduced a bit more next week, especially when taking into consideration the recent run of form by US economic data.
In other news from around the world, the Chinese central bank injected a monetary stimulus into the biggest economy in Asia. This move was made in an effort to fight back against rapidly rising short-term interest rates in China. Not only that, but monetary stimulus was seen as a necessity in order to meet the cash demands of Chinese citizens in the lead-up to the Lunar New year, which is being celebrated at the end of the month.
