247Bull.com Editor: If the Fed stops printing money to buy bonds issued by the US Treasury Department they risk sending the US into a deflationary depression not unlike the Great Depression of the 1930’s. Bonds will collapse, yields will spike and the US will be forced to default on their debt. Massive money printing is the only thing that is keeping the global economic and financial system alive. Therefore the Fed (and other central banks) have no choice but to keep printing money. That’s not to say they will succeed in restoring economic health, or avoiding the inevitable collapse. They won’t.
Wholesale Gold Prices fell below $1630 per ounce Friday morning in London, their lowest level since last August and 3.3% below where they were 24 hours earlier, while stocks and commodities also fell and the Dollar gained after Federal Reserve minutes appeared to suggest some policymakers see a case for ending quantitative easing this year.
At its policy meeting last month, the Federal Open Market Committee voted to buy $45 billion of US Treasury bonds per month to support the economy, adding to the $40 billion a month of agency mortgage backed security purchases announced in September.
The minutes from that meeting published Thursday however show that some FOMC members “thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013″.
“The news that some policymakers suggested that the Fed could withdraw QE before the end of year, that put a dent on one of the underpinnings on gold, which is expansionary monetary policy,” says Mark Luschini, chief investment strategist at US broker-dealer Janney Montgomery Scott, which managed $15 billion in assets.
“The Fed stimulus program has been a key driver behind gold,” agrees Ed Meir, metals analyst at brokerage INTL FCStone.
“Removing such an instrumental prop could impact the precious metal dramatically, especially if it was done in rather heavy doses. However, the market that will reel most is the US Treasury market, although commodity in general should feel a blow-back as well through a stronger dollar and/or weaker equity prices.”
Like gold, silver also fell after the FOMC minutes were published, hitting a low of $29.26 an ounce this morning – a daily drop of 5.8% and also its lowest level since August.
Heading into the weekend, gold looked set for a 1.9% weekly drop by Friday lunchtime in London, while silver was down 2.7% on the week.
Broad commodity prices also fell Friday, with oil down more than $1 a barrel on the day, while the US Dollar Index, which measures the strength of the Dollar against other major currencies, touched a six-week high.
Elsewhere in the Fed minutes, the Summary of Economic Projections shows most FOMC members do not expect the Fed will need to raise interest rates until 2015 at the earliest, at which time they forecast the unemployment rate will have fallen to the 6.5% target announced last month.
Later today, the latest US nonfarm payrolls report is due out at 08.30 EST, with the market expecting it to say 150,000 jobs were added to the US economy last month, according to the consensus forecast among analysts. The unemployment rate is expected to hold steady at 7.7%.
Over in Europe, stock markets extended yesterday’s losses this morning, giving up more of the gains that followed Tuesday’s US fiscal cliff deal.
Service sector growth in France and Germany slowed last month, according to purchasing managers index data published Friday, while UK services activity shrank.
HSBC meantime has cut is gold price forecast for 2013. HSBC analysts now say they expect gold to average $1760 an ounce this year, down from the previous forecast of $1850, although they expect to see prices gain from current levels.
“We believe that gold prices will recover this year and retain a pronounced bullish posture,” a note from the bank says.
“[Fed interest rates]are likely to remain at current low levels until sometime in 2015 [and] other major central banks have also adopted conventional or unconventional easing of monetary policy.”
HSBC’s silver price forecast was left unchanged at $32 an ounce average price this year.
Ben Traynor | BullionVault