Jeffrey Nichols, Senior Economic Advisor to — Rosland Capital, discusses how the current gold-market situation may react to changes in politics:
With Washington’s latest budget and debt-ceiling crisis behind us, gold traders and investors are refocusing their attention on U.S. monetary prospect – with expectations of tapering later this year rising and falling with the flow of economic data and the apparent strength of economic recovery.
But, before long, America’s dysfunctional politics will again share the limelight as a key gold-price driver.
Gold prices rallied smartly, jumping some $40 an ounce (or more than three percent) soon after last week’s last-minute agreement in Washington to postpone negotiations on government spending and the debt ceiling until early next year.
Gold’s very positive reaction to the postponement reflected revised expectations of prospective Fed policy with a growing number of market participants anticipating no imminent change in Fed policy – that is to say, no tapering or scaling back of the Fed’s super-loose monetary policy – through the end of this year and possibly into next year’s first quarter.
It has been long argued that a still-fragile and feeble economy would weigh against early tapering -- and believe the Fed will postpone cutting back in its monthly bond purchases until next spring or beyond.
As a result, one would expect the metal's price will continue to be data driven, and expect data to be pro-gold, showing a weaker-than-hoped for economy. Fed officials will remain especially concerned about the high rate of unemployment, the growing number of under-employed, and the numbers of ex-workers who have simply given up looking for employment – and gold investors would do well to monitor these economic indicators as well for clues to where gold prices may be headed next.
Indeed, the economy is weaker than most imagine, and this will force the Fed to maintain its program of quantitative easing with purchases of Treasury and mortgage-backed securities continuing at a rate of $85 billion per month though the early months of next year and possibly longer. This is one of the key reasons Roland Capital remains more bullish on the outlook than many other gold analysts and market pundits.
Moreover, with Federal Reserve Board Chairman Ben Bernanke’s tenure at the Fed ending on January 31st and Janet Yellen assuming the top spot, and other changes in the voting membership of the FOMC, the Fed might postpone any shift in monetary policy until this coming March or April. What is not known is if the Fed wants to see a durable recover – and any change in policy is dependent on the economy showing signs of renewed vigor.
Importantly for gold and world financial markets, the U.S. Congress has merely kicked the can down the road. After shutting down much of the Federal government for 16 days and coming dangerously close to a default of some sort on U.S. Treasury debt, Washington granted the U.S. economy a temporary reprieve – agreeing to resume the business of government at current spending levels through January 15th and averting default by extending the nation’s borrowing capacity though February 7th.
With the right-wing Tea Party Republicans digging in for a fight and unwilling to compromise, there’s little reason to believe things will be much different in the next round of budgetary and debt negotiations. There is a suspected renewed uncertainty over the eventual outcome – and the continuing possibility of a U.S. Treasury default.
About Rosland Capital
Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of investing in gold bullion, numismatic gold coins, silver, platinum, palladium, and other precious metals. For more information please visit Rosland Capital.
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