It was reported on 18 December 2013 that gold was enjoying a rise in demand as some investors believed that the US Federal Reserve is unlikely to make any adjustments to its quantitative easing measures. The speculation comes as the Federal Reserve is due today to issue its decisions regarding its bond and treasury buying intentions for the coming year.
As has been noted in past reports, the Federal Reserve initiated a stimulus package to help the US economy withstand the recession that began in 2008. In recent years, the Fed under the direction of the Federal Open Market Committee has injected $85 billion a year in buying treasury notes and mortgage backed securities. However, as the economy has improved in recent months, with a drop in the unemployment rate and higher levels of commerce, there are new signs that Fed may look to begin to step away from its involvement in bolstering the economy.
Analysts note that should the FOMC decide to start making cuts to the stimulus, it will have a very significant effect on the value of the USD in trading. Investors are eagerly awaiting these cuts as sitting Chairman Ben S. Bernake is expected to address the public in a press conference this evening.
However, during the recession many investors turned to gold as a haven asset to safeguard their assets from the downturn of the dollar. As the USD has begun to strengthen, gold has had one of its worst years on record, taking considerable losses. Now in the lead up to what many believe will be a shift for US monetary policy, some investors are hedging those bets by buying up gold, betting that the FOMC will not make cuts to the stimulus.
Analysts assess that investors should be skeptical that significant cuts will be announced at today`s press conference. While many of the key metrics laid out as prerequisites for the cuts have been met, especially a drop in unemployment, there is a strong likelihood that the Fed may decide that the economy is not yet strong enough to stand on its own without help from the quantitative easing.
Traders are advised to follow the announcement closely and look for potential fluctuations in both the price of gold and that of the USD.
Yen and Loonie Lose Over Potential Fed Cuts to Stimulus
According to reports on 18 December 2013, both Japan and Canada`s respective currencies suffered losses ahead of today`s announcements regarding possible changes to the US monetary policy. As noted above, the US Federal Reserve is set to declare their intentions regarding the $85 billion stimulus package that was put in place to help prop up the American economy following the start of the recession beginning in 2008.
Analysts note that many traders are moving away from the Yen, which has helped to serve as a Yen haven during the downturn of the USD during these difficult years. While the Yen itself has not had an easy time, struggling to improve growth, it became attractive for some investors. However, as many experts believe that due to the progress made over the past year in the US economy, especially on the important point of lowering the unemployment rate, there is increased potential that the FOMC may decide to reduce their involvement in the economy. Such a step could signify an improved confidence in the ability of the economy to stand on its own, thus increasing the value of the USD in trading.
For its part, the Canadian dollar also fell based on the sunny outlook on the USD by the markets. As the two countries are neighbors, changes in one?s economy can often have an influence on the other. Moreover, the price of oil, while slightly improved, has yet to return to its previous levels. Readers are reminded that crude oil is one of Canada?s most significant exports and the value of the loonie is closely tied to changes in the price of oil.
Traders are advised to watch for further currency fluctuations following the release of the American reports on the future of the stimulus.
Low US Stockpiles Boost Oil Prices
The West Texas Intermediate was reported on 18 December 2013 to have risen further after reports from two of the largest energy bodies indicated that the US stockpiles had remained low.
The industry backed American Petroleum Institute issued in their report that reserves had fallen an estimated 2.5 million barrels, while the government run Energy Information Administration expressed a higher number of around 3 million as the possible losses.
Analysts note that these shifts in prices follow the previous drop in prices that occurred after reports had described the US stockpiles to be high, thus lowering demand. It should be noted that these estimates are known to shift constantly, causing fluctuations in the market. Moreover, analysts believe that there may be a move back towards higher prices as sources in the industry believing that supply levels could rise in the near future.
Traders are advised to watch for additional fluctuations in the price of oil as both the market adjusts to the new information, and more reports on the matter are released.