Another Two Week Low In Gold, Despite Federal Reserve Stepping On Gas

How could it be? The Federal Reserve has announced it will continue buying long-term debt, yet gold demand is at a low and sentiment is abysmal. It’s never been lower since the beginning of the bull market run.

In their October 30 press release, the Federal Reserve Bank’s Open Market Committee blamed an ailing economy on a lack of government intervention in monetary policy. Despite $85 billion is being printed monthly.  It announced it would continue purchasing long-term federal debt and mortgage-backed securities indefinitely.

“Fiscal policy is restraining economic growth,” the Fed’s Open Market Committee (FOMC) concluded.

In a public statement, the Fed’s Open Market Committee noted:

The Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

The Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.

So why, still, the low gold price?

Gold declined in 2013 for the first time in 13 years, as investors lost faith in the precious metals market and the Fed started to speak about slowing down stimulus.

Gold purchases in India, the biggest consumer, will probably fall in this year’s festival season as import curbs reduce supplies and demand softens after a surge in buying from April.

Sales of coins and bars may decline to 25% of the previous year. Usually, buying and gifting gold in the country picks up during this time of the year, resulting in strong year-end gold price in many of the past ten years.

In the US, it appears to be a different story, as demand has caused the US Mint to run out of blanks and cease American Silver Eagle production for the next four weeks.

Primary Dealers of American Silver Eagles are learning that the Mint will halt its weekly allocation of 2013 Silver Eagles, and will cease all sales of American Silver Eagle coins for 4 weeks.

All-in-all, after multi-year correction, and Federal Reserve policy and the new appointment of Yellen, it is safe to say gold prices can’t go much lower.