The FOMC decision to purchase $400 billion LT securities is likely to continue affecting in small doses the financial markets throughout June 2012 when the program will end. Gold and silver didn’t seem to react to this news yesterday but currently they are traded sharply down as the Euro/USD is traded down as well.
Gold and silver changed direction again and increased yesterday: Gold rose on Wednesday by 0.06% to $1,808; silver on the other hand inclined by 1.52% to $40.47. During September, gold declined by 1.3% and silver fell by 3.1%.
FOMC to Purchase $400 billion LT Securities – No QE3
The Federal Open Market Committee decided to purchase $400 billion worth of Long Term Securities in exchange of Short Term Securities to be completed the end of June 2012. This isn’t a QE3 because there is no expansion of the Fed’s balance. The committee took this decision in a 7-3 vote for it. This action should further decrease the long term securities’ yields and help the US government rollover its debt. The financial markets didn’t react well to this news as the markets may have considered a more substantial involvement by the Fed and not a relatively small and modest purchase plan.
S&P500 / Gold & Silver– September Update
The S&P500 sharply fell yesterday by 2.94%; during September the S&P500 declined by 4.28%. The negative correlation between the S&P500 and gold and silver (as of September it was -0.486 and -0.186, respectively) suggest that yesterday’s decline in gold wasn’t related directly to the decrease in the US stock markets. If the stock markets will continue to drop, it might also affect gold and silver to trade up or at least curb their falls.
Gold and Silver Outlook:
Gold and silver continue to change directions and didn’t do much yesterday, but they are currently traded sharply down. The FOMC plan is likely to have little effect on the financial markets in the long run as it might further reduce the yields on long term securities, but during the next couple of days it may further strengthen the USD, a sequence that might pressure gold and silver to trade down. If the Euro Area Manufacturing PMI will show a slowdown it might further weaken the Euro that may also pressure gold and silver down.For the remainder of the month I speculate that gold and silver will slowly recover from their current decline, but will probably finish the month below their initial price levels form the beginning of the month.
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.
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