Those who trade gold might benefit from knowing about the plunge that the precious metal experienced on the day immediately after the Federal Reserve announced a specific timeline for tapering quantitative easing.
After its two-day policy meeting ended on Dec. 18, the Federal Open Market Committee indicated that starting in January, it would start buying $75 billion worth of debt-based financial instruments per month. This amount represents a $10 billion reduction from the $85 billion that the central bank has been purchasing every month since late 2012.
Many market experts have asserted that these transactions have served to contribute to potential inflation by increasing the total money supply. However, now that the pace of these bond purchases will be reduced, it could help defray these concerns, making market participants less likely to seek out the precious metal as a hedge against the risk that the overall price level will increase.
On Dec. 19, the day after these tapering plans were announced, February gold settled 3.4 percent lower at $1,193.60 per ounce on the Comex division of the New York Mercantile Exchange, according to The Wall Street Journal. This figure represented the lowest price for the futures contract since August 2010.
In addition to this recent sharp decline, some believe that the precious metal will fall further still, including Jeffrey Currie, head of commodities research for Goldman Sachs Group Inc., who recently told Bloomberg his prediction that the commodity has more losses ahead of it.
“Gold is now likely to grind lower throughout 2014,” Currie told the media outlet. “Much of the expected price decline has been priced in as opposed to a more gentle process as the Fed backs away from QE. When the gold market sees these events, it usually tries to price it in immediately.”
On Nov. 20, the Goldman released a prediction that by the end of 2014, the price of gold will decline to $1,050 per ounce, according to Bloomberg. The major financial services firm made this statement at a time when many are being forced to reconsider how they perceive the precious metal, as a wide range of people used it to hedge against concerns of economic turmoil that have since softened, The Wall Street Journal reported.
Individuals who trade gold might want to know about bearish forecasts for the precious metal such as this one.
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