Gold was higher ahead of the Federal Reserve policy statement expected today with prices buoyed by safe haven buying in Europe.
Gold was up $3.35 in early trading to $1,630.95 and silver was up $0.04 to $28.81, bringing the silver/gold ratio to 56.6.
The euro gained some ground against the dollar, dragging crude oil and palladium higher. The laggards in commodities this morning were platinum and copper, both slightly down in early trading.
Fed watchers expect an announcement tomorrow that will, at a minimum, recommend a continuation of the Fed’s Operation Twist, which is having a definite impact on mortgage interest rates. Whether the situation in Europe will prompt the Fed to provide further stimulus to the U.S. economy is unknown but seems unlikely at this juncture.
It seems more likely the Fed will stall for more time with some obtuse middle ground. They could announce they would be willing to extend cheap money policies beyond 2014, or an extension of the current Operation Twist. Either of those would preserve the status quo until the situation in Europe and its impact on the U.S. economy becomes more clear.
In the unlikely event the Fed does make a bolder statement about not extending Operation Twist or providing additional stimulus, then expect gold prices to tumble.
It’s difficult to say how much of the current gold rally are bets on the Federal Reserve’s money policies and how much may be a portion of that mountain of free cash in the global economy seeking a safe harbor.
My sense is there is a solid foundation for gold’s upward movement that is not dependent on the actions of the Fed, though a definitive statement suggesting the Fed will not be providing further stimulus would certainly hurt gold prices in the short term. There is already a mountain of stimulus cash on the Fed balance sheet and the European Central Bank will almost certainly be forced to print their way out of the current crisis.
Either of those are good reasons to feel bullish about the long-term future for precious metals.