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Precious metals drift ahead of tomorrow's FOMC

Last updated 6/19/2012 11:51 AM ET (GMT -5) 0 Comments - Add your comment

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David Morrison

Market Strategist, GFT

Follow @DMorrison_GFT

Gold and silver were little-changed by mid-session, with both metals trading in narrow ranges. Yesterday, gold closed above previous resistance around $1,625 for the second consecutive day, but it is currently struggling to push higher. Silver managed to hold above $28.60 – the 78.6% Fibonacci retracement of its Dec-Feb rally, but it is too early to say if this level can now act as support. Both metals appear to be marking time ahead of the release of the US Federal Reserve’s FOMC statement which comes at the conclusion of its two-day meeting tomorrow. This is when the Fed will announce its decision on whether to engage in an additional stimulus measures or not. However, they both lurched lower soon after the US stock market opened. This took gold and silver back below $1,625 and $28.60 respectively. While equity markets appear to be pricing in a significant move from the Fed, precious metals are less optimistic.Previously gold and silver have reacted violently following FOMC statements. Tomorrow is unlikely to be an exception. There are a number of things that the Fed could announce tomorrow, but these broadly break down as follows: it could take no further action, preferring to say that it stands ready to act if needed. This would be negative for precious metals. It could extend “operation twist” which would be negative-to-neutral, depending on how far out the Fed pushes its “zero interest rate policy”. Finally, it could announce further Large Scale Asset Purchases, along the lines of November 2010’s $600 billion QE2 programme. This would be the most bullish outcome for precious metals.

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About The Author

David Morrison has worked in financial markets for over 25 years. He joined GFT in February 2009 to deliver commentary and research for derivatives products. Before then David had been instrumental in setting up two spread betting companies, managed trading desks, and implemented and ran successful risk-management strategies.

He has appeared on Bloomberg, Reuters, and Sky TV, and is widely quoted by financial newswires. He has written numerous articles covering economics and trading strategies using fundamental and technical analysis.