Why Wednesday’s FOMC is Crucial For Gold & Silver Prices

#Gold #Silver #PreciousMetals

What Will The FED Do Wednesday & How Will It Affect Markets & Gold & Silver Prices

Today is Sunday 12th December 2021 and we are looking at what is likely to occur during the FOMC interest rate announcement which is due this coming Wednesday.

Yesterday we produced our
gold and silver weekly update for w/e 10th December
https://www.youtube.com/watch?v=EueYQ8-LjlM

and we have placed a link to this below and will be replicating the same video later today under a different heading and thumbnail as we now have some rather conclusive evidence that many of our videos are not being promoted by YouTube because of our name mentioned in the headline.

Now we predicted in the update that we expect that gold will trade between $1725 - $1825 with $1700 - $1850 as outliers and Silver will trade between $21.50 - $23.50 with $21 - $24 as outliers.

This past week, gold fell $1 and Silver fell 0.37 cents and both really operated within a relatively tight margin. We still see both under potential pressure this coming week, but all is dependent upon how hawkish the FOMC will be on Wednesday.

Now to some extent an increasing of the bond buying programme is expected and if this happens, there will be downward pressure on gold and silver simply because there is likely to be a strengthening of the US dollar where the index is currently standing at 96.09

That said, with the market already expecting such a move then to some extent it has already been baked into the price which is why gold at $1783 is below the crucial $1800 level and silver at $22.30 is below the important $23 level and the more crucial $1800 level.

Now before we share our thoughts, let’s take a look at 2 short excerpts – one from CNBC and the other from ING both of whom are expecting a stronger FED action on Tapering.

OK we know their thoughts and frankly we tend to agree with them. That said, there is one aspect that we also have to bear in mind. Until the outcome of Omicron is truly known the FED will be careful not to upset equity and financial markets too much as it will not wish to be blamed for thwarting or even reversing the economic recovery we are currently experiencing – well at least according to the official figures. At the same time for the FED to remain credible and its inflation target of 2% to be met at some time in the near future it cannot sit on its hands.

This is why the bond buying tapering is so ingenious, in that it allows the FED to appear hawkish without severely affecting financial stimulus in the market by raising interest rates and it is perhaps hoping that at least the threat of early rates will allow it to get away with a rather delicate balancing act without actually doing it – at least for now.

The danger of course is that if the FED appears too dovish, the dollar will fall, inflation will rise further but gold and silver will rise.

So they have to combat inflation but not destroy the equity markets which have rebounded this past week after 2 weeks of losses.

In addition we also have to bear in mind the International pressure the FED is receiving as, last week, the International Monetary Fund (IMF) called on the U.S. Federal Reserve to move faster to end its bond-buying stimulus program and raise interest rates, as U.S. gross domestic product (GDP) nears pre-pandemic levels, amid a tight labor market and rising inflation.
Also, Goldman Sachs analysts expect the Fed to double its pace to $30 billion in response to inflationary pressures.

Our conclusion therefore is that the FED will likely follow the path of increasing the tapering to end probably by March or April latest and at the same time emphasise that if inflation does not retreat then it will have to raise rates sooner than expected.

If this does happen, we see gold and silver potentially dip further but not too significantly and if we are wrong and the FED adopts a dovish approach then we can expect a nice little jump in both.

What do you think? Do share your thoughts.

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