Fed Continues Monthly $ 85 Billion Bond Buying – Gold Price Volatile

The US Fed decided on today’s FOMC meeting to continue with its monthly $85 billion bond purchases AND keep interest rates near zero until unemployment drops. The gold price reacted initially with a short rally, but closed the day flat. Reuters commented as follows on the Fed announcements:

Bullion benefited after the Fed officials revised lower their forecasts for economic growth and inflation next year. The Fed also replaced a more-modest expiring stimulus program with a fresh round of $45 billion Treasury debt monthly purchases on top of the $40 billion per month in mortgage-backed bonds they started buying in September.

In a surprise move, the Fed also adopted numerical thresholds for policy, a step that had not been expected until early next year. It said now it will keep rates near zero until the U.S. unemployment rate falls to 6.5 percent.

In a short video clip on Bloomberg, Ben Bernanke defended the need to find a solution for the fiscal cliff, as he believes the effect of not getting over it would be too impactful.

Dan Norcini commented on his weblog on the crazy idea of expecting additional monetary stimulus to achieve a specific unemployment rate. Moreover he wrote that the latest US deficit figures were published today. Compare the annualized figure he calculates with annualizing the announced bond purchase program.

Just today the news was reported that the Federal Budget deficit for the month of November was an amazing $172.11 BILLION. Try annualizing that and you come up with a number over $2 TRILLION.

How did gold react on all this news? Well, there was quite some volatility and the typical drops appeared right before the speech of Mr Bernanke, as visible on the intraday chart. The speech was follewed by an initial spike but the gold price closed the day more or less flat.

Where are we on the daily chart? From a technical point of view, the gold price is just below its 20 and 50 day moving average. The coming days will be important in the sense that support should hold.

Lastly, Jim Sinclair himself sent a short e-mail to his subscribers pointing to the fiscall cliff folly:

Take a moment to research the MSM MOPE on why the fiscal cliff was voted on when it occurred. You will be shocked when you find out it was heralded as a means of keeping a balanced Federal budget. It was a great political achievement then for austerity, and a pending villain now.

What does that tell you about the mindset of our masters? It tells me gold is going to and through $3500. Concerning the Fed today, did you expect anything else?


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