FOCUS: As-Expected FOMC Outcome Has Little Impact On Gold Although Continued QE Seen As Supportive
By Allen Sykora of Kitco News
Wednesday March 20, 2013 4:15 PM
(Kitco News) - The Federal Open Market Committee indicated Wednesday that it has no intentions of taking its foot off the gas pedal for monetary accommodation just yet, which on balance should offer underlying support for the gold market, observers say.
Nevertheless, a communiqué after a two-day Fed meeting and press conference by Chairman Ben Bernanke caused few ripples in the market, as there was little new for traders to digest, observers said. The outcome was largely as expected.
“In the short term, it’s going to be bullish only because so far, everything came out as expected,” said Sean Lusk, precious-metals analyst Ironbeam. “Bond buying will remain at current levels.”
Policy-makers left interest rates unchanged and indicated they will continue with a program to buy $85 billion in Treasury and mortgage-backed securities monthly in a bid to push down long-term, market-set interest rates. The market has dubbed this quantitative easing. Otherwise, the Fed’s benchmark overnight rate effectively has been at zero since the 2008 financial crisis.
“So far, nothing has changed,” Lusk said. “I don’t think anyone was looking for it to change.”
That in turn meant little reaction by gold. As of 4:06 p.m. EDT, Comex April futures were $6.40 lower for the day at $1,604.90 an ounce in after-hours screen trading. However, that isn’t much different from $1,605.70 two minutes ahead of the post-meeting Fed statement and roughly half an hour before Bernanke spoke.
“Nothing did anything off of what he said,” said Charles Nedoss, senior market strategist with Kingsview Financial, adding that there also was little movement in the S&P 500 and currency markets.
Gold did briefly dip by a few dollars after the Fed statement, said Frank Lesh, broker and futures analyst with FuturePath Trading. He attributed this to a slightly more upbeat assessment of the economy. However, Lesh said he suspected the dip would be bought, and in fact it was a few minutes after he spoke.
Economists had figured officials would acknowledge some improvement in the economy. After all, the February jobs report showed a 236,000 rise in non-farm payrolls and the unemployment rate fell two percentage points to 7.7%. However, policy-setters kept a statement saying interest rates will remain exceptionally low for as long as the jobless rate is above 6.5% and inflation below 2.5%. Unemployment remains “elevated,” the Fed said.
Bill O’Neill, one of the principals with LOGIC Advisors, also said Fed statements did not suggest a change in accommodation any time soon. Nevertheless, there might have been a “tinge of negative” for gold, he said.
“Really, the only reason I say that is they had a few lines in their (statement) that indicated they are expanding the measures that they are using in determining if accommodation is at levels where it should be, or if it’s not enough or it’s too much,” O’Neill said. That might seem like a baby step toward eventually changing their view on accommodation.
“But that’s really stretching it,” O’Neill said. “It’s just a nuance of what they’ve been saying. Basically, all of the comments were fairly boilerplate and not that different from previously.”
Fed officials slightly lowered their range of forecasts for 2013 gross-domestic-product growth to 2.3%-2.8% from previous outlooks of 2.3%-3.0% in December.
“The downward revision to growth is likely a reflection of differences in fiscal policy assumptions among the 19 participants,” said Nomura Global Economics. “The downward revision to GDP was slight, certainly not the 0.6pp (percentage point) that the Congressional Budget Office estimated would be the impact of the full sequester. This likely implies two things, 1. Some of the December forecasts must have already built in a sequestration assumption, and 2. Q1 GDP is tracking stronger growth that likely offsets some of the sequester impact in the forecasts.”
Forecasts for the unemployment rate at year-end were revised slightly downward to a range of 7.3%-7.5% from a range of 7.4%-7.7% previously.
Technically, April gold needs to break above the $1,625 area to generate technical momentum, Lusk said. Nedoss commented that gold’s ability to hold the $1,600 area is “encouraging,” but cautioned that some stop-loss orders may be building below this. Stops are pre-placed orders activated when certain chart points are hit.
“We need to close above $1,620 to really get things going over the next couple of days,” he said.
By Allen Sykora of Kitco News
Wednesday March 20, 2013 4:15 PM
(Kitco News) - The Federal Open Market Committee indicated Wednesday that it has no intentions of taking its foot off the gas pedal for monetary accommodation just yet, which on balance should offer underlying support for the gold market, observers say.
Nevertheless, a communiqué after a two-day Fed meeting and press conference by Chairman Ben Bernanke caused few ripples in the market, as there was little new for traders to digest, observers said. The outcome was largely as expected.
“In the short term, it’s going to be bullish only because so far, everything came out as expected,” said Sean Lusk, precious-metals analyst Ironbeam. “Bond buying will remain at current levels.”
Policy-makers left interest rates unchanged and indicated they will continue with a program to buy $85 billion in Treasury and mortgage-backed securities monthly in a bid to push down long-term, market-set interest rates. The market has dubbed this quantitative easing. Otherwise, the Fed’s benchmark overnight rate effectively has been at zero since the 2008 financial crisis.
“So far, nothing has changed,” Lusk said. “I don’t think anyone was looking for it to change.”
That in turn meant little reaction by gold. As of 4:06 p.m. EDT, Comex April futures were $6.40 lower for the day at $1,604.90 an ounce in after-hours screen trading. However, that isn’t much different from $1,605.70 two minutes ahead of the post-meeting Fed statement and roughly half an hour before Bernanke spoke.
“Nothing did anything off of what he said,” said Charles Nedoss, senior market strategist with Kingsview Financial, adding that there also was little movement in the S&P 500 and currency markets.
Gold did briefly dip by a few dollars after the Fed statement, said Frank Lesh, broker and futures analyst with FuturePath Trading. He attributed this to a slightly more upbeat assessment of the economy. However, Lesh said he suspected the dip would be bought, and in fact it was a few minutes after he spoke.
Economists had figured officials would acknowledge some improvement in the economy. After all, the February jobs report showed a 236,000 rise in non-farm payrolls and the unemployment rate fell two percentage points to 7.7%. However, policy-setters kept a statement saying interest rates will remain exceptionally low for as long as the jobless rate is above 6.5% and inflation below 2.5%. Unemployment remains “elevated,” the Fed said.
Bill O’Neill, one of the principals with LOGIC Advisors, also said Fed statements did not suggest a change in accommodation any time soon. Nevertheless, there might have been a “tinge of negative” for gold, he said.
“Really, the only reason I say that is they had a few lines in their (statement) that indicated they are expanding the measures that they are using in determining if accommodation is at levels where it should be, or if it’s not enough or it’s too much,” O’Neill said. That might seem like a baby step toward eventually changing their view on accommodation.
“But that’s really stretching it,” O’Neill said. “It’s just a nuance of what they’ve been saying. Basically, all of the comments were fairly boilerplate and not that different from previously.”
Fed officials slightly lowered their range of forecasts for 2013 gross-domestic-product growth to 2.3%-2.8% from previous outlooks of 2.3%-3.0% in December.
“The downward revision to growth is likely a reflection of differences in fiscal policy assumptions among the 19 participants,” said Nomura Global Economics. “The downward revision to GDP was slight, certainly not the 0.6pp (percentage point) that the Congressional Budget Office estimated would be the impact of the full sequester. This likely implies two things, 1. Some of the December forecasts must have already built in a sequestration assumption, and 2. Q1 GDP is tracking stronger growth that likely offsets some of the sequester impact in the forecasts.”
Forecasts for the unemployment rate at year-end were revised slightly downward to a range of 7.3%-7.5% from a range of 7.4%-7.7% previously.
Technically, April gold needs to break above the $1,625 area to generate technical momentum, Lusk said. Nedoss commented that gold’s ability to hold the $1,600 area is “encouraging,” but cautioned that some stop-loss orders may be building below this. Stops are pre-placed orders activated when certain chart points are hit.
“We need to close above $1,620 to really get things going over the next couple of days,” he said.
