Gold Flat Ahead of Fed

Posted: Dec 12, 2012 12:01 AM

Gold was trading flat as the Federal Reserve starts a two-day meeting where most analysts expect the Fed to further expand stimulus programs.

In early trading gold was down $0.17 to $1,711.23 and silver was off $0.07 to $33.14, for a silver/gold ratio of  51.6. 

Despite a surge in the euro that sent crude oil prices higher, most industrial commodities were trading flat to lower on Tuesday.  Platinum was trading weakly higher, but palladium and copper were modestly lower.  This is what a holding pattern in the commodities markets looks like. 

What happens tomorrow depends on what comes out of the Federal Reserve meeting over the next two days.  Some analysts are saying the market already priced in additional stimulus but I’m not buying that line.  Industrial commodities have been depressed for weeks; if anything gold is pricing less stimulus. 

Given all the good economic news lately, if the Fed announces a reduction in bond purchases, then gold prices will certainly correct lower.  It’s just as likely we’ll see a brief run up tomorrow if the Fed announces additional stimulus.  I don’t think either trend will last much past the end of the week. 

The short-term fundamentals and improving confidence numbers still favor weaker gold prices ahead. Balancing out the negative forces is the continued strong demand from central banks, the people printing the fiat script we’re all pretending is really money.  Obviously they don’t have a lot of faith in computer blips in your bank account or they wouldn’t feel the need to bulk up their balance sheets with gold bullion. 

For smaller investors the calculation is less complicated.  All you have to do is figure out where the sustainable growth is going to come from to boost the equities markets and I still am not seeing it.  Corporate profits have increased by squeezing more productivity out of fewer employees but we’re nearing the limits of productivity improvements and the growth of corporate profits has started slowing.  The only bright spot in growth is a recovery in construction but I don’t see that as strong enough to lift the economy out of the dumps. 

The Fed is still printing money like there’s no tomorrow, there’s no sustainable growth to drive equities, so what’s the motivation to be less defensive in my investment mix?  For now I’m sticking to my hard asset gold and silver investments until there’s a more sustainable path to growth. 

Chris Poindexter, Senior Writer, National Gold Group, Inc