Daily Gold Update

Source: Dr. Bill Musgrave, American Gold Exchange

Austin— Gold dropped 1.3% to close at $1,341 before falling another $12 after hours as the Fed continued tapering quantitative easing and changed its forward guidance on when interest rates will rise. In a policy statement released today after its two-day meeting, the central bank said it will cut monthly bond-buys by another $10 billion this month, as expected. QE has helped gold and equities rise to record highs by flooding the economy with cheap liquidity and increasing the risk of long-term inflation. The Dow and Global Dow lost 0.7% on the announcement.

What stood out in the Fed's statement was its new position on when to raise interest rates from near zero. For many months the published threshold has been unemployment below 6.5%–very close to the current 6.7%–provided inflation stays low. The new forward guidance tosses that guidepost aside in favor of a broad range of economic indicators, and specifies that rates may stay abnormally low "for some time" after the economy regains strength and inflation rises to target levels. In her post-meeting press conference, Fed Chair Janet Yellen said that the first rise could come "around six months" after the end of QE, which would likely mean by the spring of 2015.

Although the markets reacted to Yellen's comments and the new forward guidance as if tightening is around the corner, the upshot could be low rates for longer than before. Unemployment has fallen faster than expected but the labor market remains weak and the overall economy, as recent data has shown, is still stumbling. The revised policy, with its broader array of criteria, may therefore provide cover to prolong near-zero rates, which would buoy gold by pressuring the dollar. A weak dollar tends to support precious metals and other commodities denominated in dollars internationally by making them less expensive for holders of other currencies.

The other metals tracked gold lower. Silver closed down 0.2% and then lost another 1.1% after hours. Platinum lost 0.7% and palladium 0.4% at the close before edging down slightly more after hours.

At the Comex close: April gold dropped $17.70 to $1,341.30; May silver slipped 4 cents to $20.83; April platinum fell $10 to $1,451.70; and June palladium slid $3.20 to $768.20 an ounce.