(Kitco News) - Gold didn’t react sharply but nevertheless came under slight pressure Wednesday after minutes of the Jan. 28-29 meeting of the Federal Open Market Committee did not hold any major surprises, analysts said.
The minutes showed policy-makers are likely still on course to continue tapering the bond-buying program known as quantitative easing, to the disappointment of some bulls who might have hoped soft economic data so far this year might cause the Fed to reconsider, analysts said. Also, one analyst cited some uncertainty about what Fed officials might do with forward guidance for interest rates at future meetings.
At 3:07 p.m. EST, gold for April delivery was $10.90, or 0.7%, lower to $1,313.50 per ounce on the Comex division of the New York Mercantile Exchange. The market extended its earlier loss slightly, as it was trading at $1,319.40 two minutes ahead of the Fed minutes. The contract is slowly edging back toward its 200-day moving average, which currently lies at $1,310.30 an ounce.
Bart Melek, head of commodity strategy for TD Securities, described the minutes and Fed speakers earlier Wednesday as largely “more of the same” from the central bank.
“Tapering continues pretty much as planned,” Melek said. “That proved to be a little bit of a negative for gold. I think there were people in the market who thought that maybe the Fed’s outlook was weakening or deteriorating, and they were hoping and speculating that there may be a bit of a slowdown in the pace of the taper.
“Certainly the minutes and the (Fed) speakers today suggest that’s not the case and tapering will continue to go on until we get such evidence to say the U.S. growth has somehow been more permanently hurt by the slower data we’ve seen.”
The next FOMC meeting is scheduled for March 18-19. Investors will be watching to see if the tone of Fed officials changes since much of the data reported since their January meeting – including nonfarm payrolls and retail sales for last month – has been weak, although much of this has also been blamed on the weather.
A part of gold’s retreat also might be tied to the portion of the minutes explaining that policy-makers discussed eventually changing their forward guidance for interest rates, said Phil Flynn, senior market analyst with Price Futures Group. This means uncertainty, which markets don’t like, Flynn said.
The Fed has previously said the federal funds rate will remain at its historic lows for as long as the unemployment remains above 6.5% and inflation one to two years in the future is projected to be no more than a half percentage point above the committee’s long-term goal of 2%. The jobless rate in the January employment report was listed at 6.6%.
“Basically, they didn’t say anything that was a real surprise,” Flynn said. “But, they’re talking about changing their forward guidance. So that creates a little bit of uncertainty.”
At the January meeting, policy-makers scaled back the bond-buying program known as quantitative easing by another $10 billion per month for the second meeting in a row, taking the monthly purchases down to $65 billion.
However, the minutes hinted at some apparent debate within the Fed. Some Fed members were worried the economy might not be strong to continue the pace of tapering, although they also felt a pause in tapering was not justified as of the January meeting. Several felt tapering should continue in the absence of “an appreciable change in the economic outlook.” Still, a number of participants felt the Fed should be ready to respond with an “appropriate adjustment” if the economy deviates from the expected path of improvement.
Meanwhile, a few members also said it might be appropriate to increase the federal funds rate “relatively soon.”
According to the minutes, a number of officials said the weak growth in December nonfarm payrolls might have been an “anomaly,” perhaps due to bad weather. The meeting occurred before the market got another jobs report from January again showing employment growth well below the 2013 average.
By Allen Sykora of Kitco News; email@example.com