Thursday, February 21, 2013

Gold and Silver Decline on Fed Minutes Release

Gold and Silver have declined sharply overnight on momentum trading in New York after the release of the January Fed minutes. The minutes were perceived by the markets as a portend that the Fed may ease up on monetary policy accommodation - ie they might print a few less digital dollars and let interest rate rise a bit, maybe.

Gold fell through the US$1600 level down to $1559 before the decline halted. Silver fell through US$29.50 down to $28.29 before recovering slightly.

Relevant section of the Fed minutes and link follow the charts below.

Minutes of the Federal Open Market Committee

January 29-30, 2013

Link to full release

Committee Policy Action

Committee members saw the information received over the intermeeting period as suggesting that growth in economic activity had paused in recent months, in large part because of weather-related disruptions and other transitory factors. Employment had continued to expand at a moderate pace, but the unemployment rate remained elevated. However, members generally expected that, with appropriately accommodative monetary policy, economic growth would proceed at a moderate pace and the unemployment rate would gradually decline toward levels they judged to be consistent with the Committee's dual mandate. Although members saw strains in global financial markets as having eased somewhat, they continued to see an increase in such strains as well as slower global growth and a greater-than-expected fiscal tightening in the United States as downside risks to the economy. Members generally continued to anticipate that, with longer-term inflation expectations stable and slack in resource utilization remaining, inflation over the medium term would run at or below the Committee's longer-run objective of 2 percent.

In their discussion of monetary policy for the period ahead, members saw the economic outlook as relatively little changed since the previous meeting. Accordingly, all but one member judged that maintaining the highly accommodative stance of monetary policy was warranted in order to foster a stronger economic recovery in a context of price stability. The Committee agreed that it would be appropriate to continue purchases of MBS at a pace of $40 billion per month and purchases of longer-term Treasury securities at a pace of $45 billion per month, as well as to maintain the Committee's reinvestment policies. The Committee also retained its forward guidance about the federal funds rate, including the thresholds on the unemployment and inflation rates. Some members remarked favorably on the move away from providing calendar dates in the forward guidance and toward highlighting the economic conditionality of future monetary policy. One member dissented from the Committee's policy decision, expressing concern that the continued high level of monetary accommodation increased the risks of future economic and financial imbalances and, over time, could cause an increase in long-term inflation expectations.

In the statement to be released following the meeting, the Committee made relatively small modifications to the language of its December statement, including to acknowledge both the pause in economic growth during the fourth quarter and some easing of the strains in global financial markets. In light of the importance of ongoing U.S. fiscal concerns, members discussed whether to include a reference to unresolved fiscal issues, but decided to refrain. Similarly, one member raised a question about whether the statement language adequately captured the importance of the Committee's assessment of the likely efficacy and costs in its asset purchase decisions, but the Committee decided to maintain the current language pending a review, planned for the March meeting, of its asset purchases.

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