Gold prices push lower as Fed speculation plays key role

TradingPub Admin | June 17, 2013

Responsive image

If you want some free trading education on variables that repeatedly impact the gold markets, then learning about factors such as quantitative easing and physical demand and how they affect the precious metal can be very valuable.

Contracts for the precious metal had a rough start on June 17, as spot gold was down 0.6 percent at $1,382 an ounce, according to Reuters. In addition, U.S. gold was trading $0.30 per ounce lower at $1,384.

This comes as physical demand has fallen recently in Asia, and this region is a major source of gold consumption, the media outlet reports. One nation in particular that is suffering lower demand for the metal is India. Government intervention in the form of an increase in the import duty has served to lower these purchases.

While gold dropped slightly on June 17, it has had significant fluctuations recently. The precious metal fell into a bear market in April, having lost 20 percent since reaching its all-time high. In recent weeks, price fluctuations have been substantial amid a flurry of statements provided by Federal Reserve officials.

Wide range of Fed statements
A wide range of officials from the Federal Reserve have provided communications related to the future stimulus plans, according to the news source. However, the number of statements provided by these individuals has coincided with them having substantially different insights. The market has struggled to process the wide range of different signals.

Many market participants have grown worried that the current monetary easing plans of the Federal Reserve will be reduced, and these concerns have served to hold back the value of gold, putting downward pressure on the precious metal, MarketWatch reports. Monetary easing has helped to push the commodity higher over the last several years, as it has helped to stoke inflation concerns.

Experts speculate on Fed easing
Several market experts have provided their input on whether or not they think that monetary easing will be changed in the near future, and these individuals have given a range of statements. For example, Valérie Plagnol, strategist at Credit Suisse, told the news source that currently, the odds that the central bank will indicate the use of additional monetary easing is low.

The market expert pointed to the recent increase in yields offered by government bonds, and told the media outlet that the upcoming meeting of the Federal Open Market Committee will be of particular interest to market participants.

Not only has Plagnol predicted that the Federal Reserve will probably not announce the use of more stimulus, but a Reuters poll of economists indicates that some of these market experts believe that that the central bank could lower its bond purchases in September. In addition, the belief that these transactions will be cut back by the end of 2013 is held by the majority of respondents.

This view that stimulus plans will be dialed down in the near future has been mirrored by T. Rowe Price chief economist Alan Levenson, who wrote in a recent report that there are many reasons to believe that the economy is improving, which makes future use of easing less likely.

The Federal Reserve has taken part in robust stimulus plans in the last several years that have pushed the balance sheet of the organization above $3 trillion. The Fed is currently purchasing $85 billion worth of debt-based assets every month. In addition, it is keeping benchmark interest rates close to their lowest values on record. The objective of using these policies is providing stimulus to the U.S. economic recovery.

If you want more free trading education, you can find it at TradingPub, home to some of the top investors and traders in the industry.