U.S. Fed and Bank of England: QE Still The Order Of The Day
Today’s AM fix was USD 1,275.50, EUR 960.61 and GBP 838.04 per ounce.
Yesterday’s AM fix was USD 1,292.00, EUR 972.97 and GBP 840.38 per ounce.
Gold fell $17.80 or 1.37% yesterday and closed at $1,283.60/oz. Silver fell $0.16 or 0.82% and closed at $19.52.
Gold continued losses into a third session after comments by a Dallas Fed official ramped up fears that the U.S. Fed could begin tapering soon. Today, the governor of the Bank of England unveiled a Fed-style forward guidance.
Yesterday, India's largest spot commodity exchange was shut down as regulators investigate possible trading violations. This had no impact on global gold bulliontrading prices. The lack of proper regulation is just one problem that the Mumbai exchange and many others must solve.
Richard Fisher, the Dallas Federal Reserve President was first out of the blocks on Tuesday and he was followed yesterday by Charles Evans, the Chicago Federal Reserve President, who reiterated Fisher’s sentiments by indicating that the better than expected economic and labour market data in the U.S means that the Fed might introduce tapering as early as September.
Evans, who is one of twelve Federal Reserve Presidents, believes that the economic indicators “are actually really better” and this signals a new, more firmer indication from the Fed that tapering is going to happen.
The 12 Federal Reserve Banks are - 1st District: Boston, 2nd District: New York,3rd District: Philadelphia, 4th District: Cleveland, 5th District: Richmond, 6thDistrict: Atlanta, 7th District: Chicago, 8th District: St. Louis, 9th District: Minneapolis, 10th District: Kansas City, 11th District: Dallas, 12th District: San Francisco.
Observers of the Fed will be watching closely what the next Federal Reserve President will say. With two of the 12, who have opposing views on QE, already pitching tapering there is no reason to doubt that those that follow will not read from the same page. The ‘gentle’ introduction of tapering is being orchestrated alongside the selection procedure for the next chairman of the Federal Reserve, an appointment in itself that will affect the price of gold and all other commodities.
In the UK, the new Bank of England governor, has announced that the central bank will not raise interest rates until UK unemployment hits 7 percent. The UK unemployment rate currently stands at 7.8%.
Since 2009, the Bank of England has pursued its own QE policies under the guidance of its Monetary Policy Committee. Carney has been bolstered by recent data that appears to show the UK economy is on the road to recovery. Manufacturing output rose 1.9% month-on-month in June, following declines in both May and April. What is important is that this growth came at more than twice the rate expected by analysts.
Carney told a packed press conference: "A renewed recovery is now underway in the United Kingdom and it appears to be broadening" and cautioned that the recovery is "weak" by historical standards. Then Carney added that he believes gross domestic product (GDP) in the U.K. will not hit its pre-crisis peak for another year.
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