GOLD PRICE NEWS – The gold price stabilized Wednesday morning, changing hands at $1,332 per ounce ahead of the 2:15pm est. release from the Federal Open Market Committee. During yesterday’s session, the price of gold fell as low as $1,322, but rebounded as dip buyers emerged after three straight days of losses. The gold price traded to its lowest level since October 4, 2010 as fears over tighter monetary policy from global central bankers have weighed on the yellow metal.
Gold equities are trading slightly higher this morning after finishing in negative territory once again yesterday. The AMEX Gold Bugs Index (HUI) slid 0.5% to 497.98, its lowest close since October 21, 2010. The HUI is now down 13.1% in January, and is on pace for its worst month since a 14.7% plunge in June 2009. Notable decliners included Agnico-Eagle Mines (AEM) and IAMGOLD (IAG), which fell 0.4% and 0.8%, respectively.
Silver, unlike the gold price, was unable to mount a comeback on Tuesday as it finished with a loss of $0.50, or 1.8%, at $26.82 per ounce. Gold’s sister precious metal has now fallen for five straight trading sessions, and in nine of the past ten. From its 30-year high of $31.275 reached on January 3, the silver price has plummeted $4.46, or 14.2%.
As for the gold price, it has dropped $98.50, or 6.9%, from its $1,343.50 all-time high posted on December 3, 2010. Furthermore, with a 6.1% loss thus far in 2011, the gold price is on pace for its worst month since it tumbled 7.1% in December 2009.
Traders and investors are eagerly awaiting this afternoon’s release form the Federal Open Market Committee (FOMC) announcement. While interest rates will stay unchanged, the Fed’s policy statement will be parsed for any changes pertaining to the recent spate of stronger economic data. The Fed is expected to maintain the size of its $600 billion second round of quantitative easing (QE2). The consensus is forecasting that Chairman Ben Bernanke will reiterate the Fed’s belief that inflation remains tepid and zero interest rates will remain a fixture for “an extended period of time.”
One notable change at this Fed meeting is the exit of Fed President Thomas Hoenig as a voting member of the FOMC. Throughout 2010, Hoenig, the most prominent inflation hawk at the central bank, casted dissenting votes on the need for record-low interest rates and QE2. However, Hoenig is being forced to step down due to the Fed’s mandatory retirement age of 64.
Bernanke and the other FOMC doves will now face less opposition as they continue to deploy ultra-loose monetary policies aimed at stimulating the economic recovery. While many economic indicators have continued to improve in January, the most important one – the U.S. employment picture – has not.
The deflationary impact of structurally high unemployment has been one of Bernanke’s key reasons for QE2, and until such time as the jobs market shows consistent, meaningful improvement, the Fed is likely to maintain its ultra easy monetary policies. As long as deflation is the chief enemy of Chairman Bernanke, the trajectory of the gold price is likely to remain firmly upward.
