It is rather remarkable to down gold think that less than a month ago, gold shot up on the back of a missile firing in North Korea and the assorted baggage that came with that. The market was scared and gold was the major beneficiary. Now here we are, with the price of gold almost fifty dollars lower, but nothing has really changed. Trump is threatening total annihilation of North Korea, to which I am sure Kim Jong Un will have something to say or do. And now in addition to that, the US President is picking another fight, this time with Iran, with inflammatory comments at the UN yesterday. It does indeed seem that the markets have very, very short memories. But amongst all this, this week’s focus shifted to the much awaited FOMC meet, its concluding statement and what the Fed would say about balance sheet reduction.
On Nov 25, 2008 The Fed announced it would begin buying assets for its own account to save the world. In Oct 2014, The Fed ended its QE3 buying program but continued to reinvest the proceeds to maintain its $4.4 trillion balance sheet. Today, Janet Yellen announced the balance sheet will be allowed to normalize, with reinvestments slowed/stopped starting in October.
Let take a quick look at the key highlights over the Feds statements of the meet:
- Hurricanes are unlikely to change economy’s course medium term
- Economic activity has risen moderately and job market has strengthened
- Rates kept unchanged as Fed plans balance sheet runoff in October
- Fed signals another hike in 2017 and 3 more in 2018
As expected, the Fed announced it will begin reducing bond reinvestments, starting by $10 billion per month and growing to $50 billion.
Gold prices settled higher Wednesday but slipped in electronic trading after the U.S. Federal Reserve’s decision to keep interest rates unchanged
The price of spot gold has cracked back below the $1300 on the run up in the dollar after the FOMC decision. The precious metal is trading at the lowest level since August 28th.
In electronic trading after the Fed statement, prices traded lower at $1,310.70. The central bank said it will taper its $4.5 trillion balance sheet by $10 billion per month, the first reduction in nine years. Meanwhile, the Fed’s interest rate projections,down gold known as the dot plot, suggested a rate hike in December and three more in 2018.
A spill over effect of this meeting was clearly seen on gold as it broke the important trading level of $1300.