Gold Mixed Ahead of FOMC

A few months ago when the FOMC decide to launch QE3, it had a short term effect on precious metals prices. This injection of stimulus seem to have had a positive effect on the U.S economy as the inflation remained stable and the housing market is slowly recovering with a moderately rising employment. If the FOMC decides to expand its monetary policy or even hint to the fact, this could pull up gold and silver prices. Market expectations are mixed at this point; with the minimum expectation is an expansion of Operation Twist. Yesterday gold climbed above 1716.00 to close at 1714.00 and once again declined in early Asian trading to 1710.85.

Traders are facing numerous difficulties, the US Fiscal Cliff negotiations keep traders on edge, it is understood, that US lawmakers will reach an agreement before the January 1, 2013 deadline but it is the terms of the agreement and the form of the tax increases that have traders worried. Many are selling off both profitable and losing positions ahead of new tax changes.

Gold price declined during last week by 0.37% and the average rate reached $1,702.44. Gold closed the week at $1704. Silver also declined during last week by 0.39% and the average rate also decreased by 2.29% to reach $33.1. The market sentiment is still on the weaker side due to technical and fundamental reason. The euro weakened due to the downbeat outlook prediction by the European central bank and Germany’s Bundesbank on the euro zone and German economy respectively.

After momentum appeared to be down warding during the previous week, net speculative length for Comex gold again increased this past week — 29.6 tonnes were added and this turnaround is encouraging. This past week’s increase was driven by a 40.0 tons addition to speculative longs. However, the 10.0 tons increase in shorts also, which is largest since June — which is some extant diminish the signal of confidence from the overall improvement.

Gold marched higher for the third straight trading day Monday as some investors sought a haven from euro-zone political uncertainty while others stocked up on gold ahead of the Federal Reserve’s policy-setting meeting. The U.S. Federal Reserve’s monetary policy committee meets for the last time in 2012 on Tuesday and Wednesday, and expectations are that the Federal Open Market Committee will announce another long-term asset-purchasing program. The meeting, which concludes Wednesday afternoon, is expected to show that the Fed will conclude its “Operation Twist” program, officially known as the Maturity Extension Program, and replace it with a new program to purchase longer-dated Treasury securities, said several Fed watchers. This would be in addition to its current third round of quantitative easing launched in September. If the Fed announces a new asset-purchasing program, it would underpin gold prices.

Gold is expected to go higher today as positive outlook for bullions due to bullion friendly fed meeting can push the prices higher.

After particularly strong showing of confidence during recent past, interest in silver remained, with net speculative length (COMEX) growing at a strong but in a slower pace — 289.4 tonnes were added, compared to the 680.0 increase of the previous week. The turnaround of the past three weeks has erased more than 80% of the liquidations of the preceding four weeks. Silver is trading at 33.165 slightly lower this morning.