Gold dips before Fed meeting

The price of gold is lower ahead of tomorrow’s Federal Reserve meeting, as traders are expecting no change in policy.

Gold is trading at $1378, down 0.5% on the day as dealers take their money out of the precious metal and invest in riskier assets. This morning we are seeing a reversal of the flight to quality; investors traditionally buy gold when the equity markets are perceived to be volatile, and today dealers are buying into stocks.

Tomorrow evening, the Fed will update us on the state of the US economy. Their current monetary policy is very aggressive – it entails pumping $85 billion a month into the financial system in order to boost the economy. The most recent update from the US revealed that unemployment increased by 0.1% to 7.6%. Traders therefore trust that the Fed will keep their monetary policy unchanged as the US economy is far from healthy.

If the Fed reiterates their commitment to quantitative easing until unemployment falls to 6%, we might see the price of gold lose further ground. Alternatively, if the Fed discuss tapering their stimulus package, we might see gold rally.

Spot gold chart

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