Gold and silver have backed down from recent gains as market bears seem to have once again gained a hold on the precious metals market. Yesterday’s bipartisan budget agreement reached by US lawmakers did not help out spot values as investors begin to bask in a US market that is quickly becoming less and less uncertain. With next week’s FOMC policy meeting just around the corner, investors are in full-fledged speculation mode as to the exact timing and severity of a reduction to the Fed’s monthly bond-buying policy, also known as Quantitative Easing.
Because this week was more or less devoid of any major economic or geopolitical news, the market has been fixated on few things other than next week’s FOMC meeting.
Big Bipartisan Deal
Only a few months ago, a government shutdown gripped Washington DC and caught the attention of citizens from around the world. Unable to reach a budget agreement for this government year, the United States government was forced into a shutdown that saw thousands upon thousands of people out of work, even if only temporarily. The 2+ week debacle served no other purpose than to highlight the incompetency of some lawmakers and to make the American governing body the laughing stock of the world. When a deal was finally reached and the shutdown was over, most American were overjoyed at the news, but that happiness quickly changed into frustration once the American public realized that the budget agreement reached by lawmakers back in October was only temporary, set to expire in January. The temporary nature of this budget agreement meant only one thing; that we may have to witness another government shutdown only a few months down the road.
Fortunately for the American public, however, lawmakers from both the Democrat and Republican sides were able to set their differences aside and come to a permanent agreement with regard to the US budget for this year. Despite the big news, most markets did not react much at all, at first anyway. Today was a different story, though, as gold and silver spot values declined as soon as the day opened. The reason for this is because the bipartisan budget agreement takes a large geopolitical question mark out of the equation for investors. Because investors do not have to worry about the possibility of another government shutdown in a few weeks, their appetite for risk grew considerably. All this increased risk appetite did was put downward pressure on gold and silver, enough to force both metals into relinquishing the modest gains they made on Monday and Tuesday of this week.
As we look ahead to next week, the FOMC policy meeting scheduled to kick off on Tuesday is at the forefront of every investor’s mind. Speculation with regard to the timing and extent of QE tapering has been raging for this whole week and will continue to do so right up until the meeting gets underway. While it has been thought that the FOMC would reduce QE for the past half year or so, this upcoming meeting seems more likely a time than the past 6 meetings combined. With strong economic data and a budget agreement already reached, the current economic and geopolitical atmospheres in the US seem perfect for a tapering announcement.