Gold price faces worst week since 2021 as Fed signals no rate-cut rush
Bullion has fallen six days in a row and is set for a weekly loss of more than 4%.
Gold climbed to $1,710 an ounce on Tuesday buoyed by news of a Japanese round of quantitative easing and a weaker dollar.
Japan’s move to flood market with cheap money follows similar measures in Europe and the US Fed’s third round of QE which kicked off in September.
The good fortune of the yellow metal seems increasingly tied to monetary policy in the US – easy money adds to gold’s allure as an inflation hedge and storer of wealth amid currency depreciation.
Rallies in the metal has been most striking under democratic presidents – when gold set a record in 1980 of $850 (some $2,400 in today’s dollars) it was under Jimmy Carter and of course Barack Obama was in the White House when gold hit a record above $1,900 last year.
If gold can stay at current levels it would be the 12th year in a row that gold has shown annual gains, but if Republican challenger Mitt Romney should win the US presidential election he could stop the metal dead in its tracks reports the Financial Times (sub required):
But the real “Romney risk” for the yellow metal has nothing to do with fiscal policy. Instead, traders and investors are focusing on the likelihood that if Mr Romney wins the November 6 election, he would replace Ben Bernanke with a more hawkish chairman of the Federal Reserve when the latter’s term expires in January 2014.
If that means a change in direction from the Fed’s current experimental and super-accommodative monetary policy, gold could suffer. Recall the sharp sell-offs earlier this year when expectations of quantitative easing were deferred.
“From the gold market point of view, the Fed is the significant thing,” says one major hedge fund investor in the yellow metal.
Likewise, an Obama victory may be the green flag gold bulls have been waiting for.
The Fed’s QE programs and ultra-easy policies have been a massive boon for gold.
The Fed’s near-zero interest rate policy and bond purchases under QE1 kicked off on 16 December 2008. On 15 December 2008 an ounce of gold cost $837.50.
That’s a more than 111% improvement for the precious metal on the back of QE1 and QE2 which followed in August 2010.
Another of the Fed’s programs to keep interest rates low, Operation Twist, which started in September 2011 has also boosted the price of gold.
The gold price has taken a few hard knocks from 2011’s record levels and the spikes downward have all been thanks to actions or pronouncements by chairman Ben Bernanke and the Fed.
At the same time volatility in the gold price has increased dramatically.
At the start of April for instance gold dropped some $60 an ounce in a single session when Fed minutes appeared to indicate QE3 was off the table and its policy of zero interest rates may be coming to an end sooner than previously thought.
The same thing happened on June 7 when gold dropped $50 to under $1,600 an ounce in a couple of hours after Bernanke delivered “anti-climactic” testimony to the US Congress.
That was not the first time traders got cold feet after breaking an important psychological level.
A similar pattern was followed in the days after the metal reached a record high above $1,900 an ounce in August 2011. The yellow metal slid for two days after hitting the record, losing $105 or 5.6% in value in a single day.
In 2011 trading in gold was the most volatile since 1980 with the gap between the year’s highs and lows coming in at close to $600 an ounce or a 32% range.
In 1980 the spread was even greater at more than 40% and followed the 21 January 1980 record of $850 a ounce set after a spike in oil prices following the Iranian revolution and Russia’s invasion of Afghanistan.
At the time gold also fell precipitously after setting the record – within two days it fell back to under $700 starting a bear market that lasted almost three decades.
Gold breached $850 again at the start of 2008, but in inflation adjusted terms the 1980 price is still the highest ever – gold would have to hit some $2,400 an ounce to set a record in today’s money.
Image from Mitt Romney Media.
18 Comments
Think-about-it
Fortunately Frik, the readers have a higher intellect than you are capable of seducing into believing your pro-bamanation koolaid – maybe you could rehearse your Jone’s Town lines somewhere else. Or, maybe you should just stop writing propaganda and drink the koolaid your self. That will save the Mining,com readers time and you the personal humiliation of looking so frik-ing stupid.
Clo B
An other article confirmed that.
Wednesday, October 31, 2012
“If Obama Gets Re-elected Gold Is Going To Go Through The Roof”
http://www.gotgoldreport.com/2012/10/if-obama-gets-re-elected-gold-is-going-to-go-through-the-roof.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+typepad%2Fggr+%28Got+Gold+Report%29
Guest
Gold will tank to $900. Romney will win. I saw it in my crystal ball.
Clo B
I guess you bought your crystal ball at Walmart to see low price for Gold. lol
Sicilian Gold
In Friend of Another’s (FOA) Gold Trail, he once said,
“My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)”
-April 2001
yotaloco
Just happened upon this article….Good to see folks aren’t listening to this authors useless blather. Gold never loses or gains in value. It’s simply the fluctation of the value of the currency which is tied to the economic health of the nation which gives the illusion that gold changes value. One ounce of gold will buy me a nice suit…as it would in 1920, 1820 so on and so on. The unlimited QE by the fed will only lead to hyperinflation. Short term relief is seen from QE, but the problems only compound for the future by devaluing the currency. It has been documented throughout history, countries who abandoned the gold backing of their currency to, print money to pay their debts imploded their currency just as the fed is doing today. I invest in physical gold as a means to preserve wealth…not expand on it. Simple supply and demand economics will always ring true and honest…,don’t buy Bernanke line about there isn’t enough yellow stuff to go around and that is why you can’t use it…this is a falacy, Go back to simple supply and demand,..as long as there is demand and the less there is to go around the more value it holds. Time to ditch the Keynsian theory of debt = money.
Sicilian Gold
The Inside Story on the Gold-for-Oil Deal that could Rock the World’s Financial Centers
http://www.usagold.com/goldtrail/archives/another1.html
Fed-Up with "CHANGE"
HERE’S THE DEAL: With Romney, we WON’T need GOLD – for gold is for times of dire circumstances !
Thank you for helping me decide who to vote for.
yotaloco
On a political note, after hearing the puppet show debates, Romney and Obama agree on more often than not. ..difference being Romneys strings are in the right hand while Obamas are controled by the left hand…as long as they put on a good show for us to see, it gives the illusion our system is at work and the people can argue over Roe V Wade….Roe V Wade should have gone down in history as the decision General Washington had to make crossing the Deleware River.
L.vdV
Very interesting
Mark Harder
This analysis does not address the fact that the market for gold is global, thus more complex than an indicator of US fiscal policy only. The US is not even the world’s large gold purchaser. I don’t pretend to have a better analysis, but I won’t count on this being the correct one. At least it makes a prediction, though. We’ll have to wait a few months to see what actually happens.
Hendra Gunawan
I do agree … Mark!
2ndOrion
The Democrat theory would be plausible if the value of gold in dollars per ounce hadn’t fallen to its lowest point during the Clinton Democrat Administration.
Since the end of that Administration, the price per ounce has risen to its current level. This price rise has been accompanied by what is considered as significant printing of dollars that have no backing, other than debt notes. The greatest so-called printing of dollars has been since the Obama Administration. All of these dollars are still in circulation somewhere. These dollars to ounces of gold in existence are what roughly gives gold the dollars per ounce value. Currently this “Printed” amount under Obama is roughly three times what it was when President Obama came into office, therefore it is doubtful that the gold price will drop much from what its present price is. Only scared investors will sell their metal which may cause a drop temporarily, but then it will climb back to what it currently is now -or higher if more “Printing” from Quantitative Easing takes place.
When scared investors drop the value per ounce to its lowest it would be the time for those that could be investors because they have plenty of dollars to purchase the gold at that price. This purchasing will raise the price back up to its current level.
If one looks on the gold price charts from the present back to 1990, they will see all of this change in gold prices and can work accordingly.
JJ
GO MITT GO!
Richard Scully
I don’t understand how gold would lose its value..I can see the dollar getting much stronger from not printing money, but people are still looking for something safe, and the worlds problems are far from over
David R. (Canada)
Anyone who thinks there’s going to be a big change in the US government fiscal policies is only fooling themselves.
Romney is just the lesser of two evils.
Jack H (Oregon)
There are two distinct markets in gold. Those who deal in it as simply another “come line” on the craps table and those concerned about acquiring physical gold. All the concern about QE Infinity is critical to the speculators. It is largely irrelevant to those who want gold as insurance. In fact, every time the speculators panic and drive the price down, that is a benefit allowing the other market to purchase more for less.
The need for gold as insurance lies in the degradation of the dollar which has already been accomplished. It’s future as the medium of exchange for petroleum is already under attack and there is now nothing either Romney or Obama can do about it. The petro-dollar is toast waiting simply for the BRICs to pull the plug on it.
mike
Yes, Romney would improve the economy, the dollar would be worth more, and gold might go down a little, which won’t hurt many/any producing mines. Obama would cause the price to go up because he won’t allow it to be mined in the US, nor anything else to be mined here, oh he and Bernanke would continue to diminish the value of the dollar. Good grief.