UPDATED: Gold Drops Despite Decision to Continue QE

A highly anticipated decision by the US Federal Reserve’s policy committee was initially favorable for gold but then the trend turned downward.


A highly anticipated decision by the US Federal Reserve’s policy committee was initially favorable for gold but then the trend turned downward. 

Minutes of the Federal Open Market Committee posted on Twitter about 11:25 am PST on Wednesday showed that the Fed will continue its $85-billion a month bond-buying program known as quantitative easing. According to the statement:

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, 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 Fed said QE is necessary to keep downward pressure on interest rates and support mortgage markets.

Reuters reported minutes after the Fed decision that spot gold climbed 0.5 percent to $1,376 an ounce, while US gold futures gained $7.10 to close at $1,374. The rest of the session however saw the yellow metal fall about $16, to hit fresh lows of $1,350, after Fed Chairman Ben Bernanke said in a press conference that QE could be scaled back if the economy improves further.

Gold has been trending down in the past few sessions, with investors jittery that the Fed would make a decision to scale back the program, which has been bullish for gold, due to improving economic conditions in the United States. On Tuesday gold sank to a monthly low of $1,360/oz.

As to how long QE could continue, the FOMC said 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.”

The central bank has been closely watching US employment figures and said the US unemployment rate could fall to 6.5 percent by next year instead of 2015 as was previously estimated. That would be the Fed’s signal to start dialling back the stimulus program.

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