March 24th, 2014
Money Morning Article of the Week
by Tara Clarke, Money Morning
Gold prices today (Thursday) (NYSE: GLD) continue to fall following U.S. Federal Reserve Chairwoman Janet Yellen's first-ever Federal Open Market Committee (FOMC) meeting, hitting a three-week low in early trading. The yellow metal's decreases over the last few sessions have obliterated all of March's gains, including a six-month high achieved on March 17.
SPDR GOLD TRUST ETF
Price: 128.47 | Ch: 0.61 (0.5%)
Spot gold dropped as low as $1,320.24 an ounce, its lowest since Feb. 28; as recently as Monday, the metal was flirting with $1,400 an ounce. U.S. gold futures for April delivery fell to $15.30 an ounce at $1,326.00. Bullion for immediate delivery declined 0.5% to $1,323.18 in London.
The FOMC elected to trim its asset-purchasing program (quantitative easing) by another $10 billion to $55 billion per month and said it will slow purchases in "further measured steps."
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But the bigger story affecting gold prices was the FOMC's decision to alter language on when the Fed would start to consider an increase in interest rates once U.S. employment reaches 6.5%. The new language provides the central bank greater discretion in the timeline for when a rate increase occurs, regardless of the national unemployment rate, which sits today at 6.7%.
Record-low interest rates over the last few years have been fueling gold, as they cut the opportunity cost of holding non-yielding bullion over other assets. Gold climbed 70% from 2008 to 2011 as the Fed pumped more than $2 trillion in stimulus money into U.S. financial markets, slashing interest rates to drive the economy.
On yesterday's news that U.S. interest rates could rise sooner than expected, gold promptly took its biggest one-day fall since January, dropping 1.8%.
Saxo Bank's head of commodities research Ole Hansen said to Reuters that -
"Gold was already on the defensive as safe haven bets were closed, and the Fed news added some additional pressure. The market is now busy pricing in higher rates sooner than previously expected, and that could become poisonous for gold."
Gold prices today are also falling as the Fed's domestic news pushed the Ukraine-Russia conflict off the radar for the time being.
Gold, a safe-haven investment, had been moved higher and higher as tensions between Russia and the West increased throughout March.
Hansen said -
"The risk related to Ukraine has not gone away, but moved to the sidelines for the time being."