Why Gold Prices Fell to Three-Week Lows After FOMC Meeting

March 24th, 2014
in gold

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.

Follow up:


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."

Note: The Fed's 2014 taper means volatility ahead. So we've outlined how to find profits in a volatile market - like triple-digit gains in just days - if you start with this strategy...

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."

NOW: This "forbidden" energy market is about to crack open...

Related Articles:

Precious-Gold Hits Three-Week Lows After Fed Comments

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.

 navigate econintersect.com


Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved