Spot Gold is currently trading around the $1,205 level today, near its three-week low as the dollar strengthened across the board following the Federal Reserve’s decision to end its asset-purchase program known as ‘Quantative Easing’ last night.
Fed officials, who voted on whether to proceed with plans to end the monthly bond-buying or not, dismissed recent turmoil in global financial markets and weak inflation figures, instead focusing on employment gains as they signalled they were a lot more positive on the economic outlook than many other top economists. Following the two-day meeting yesterday the board maintained a commitment to keeping interest rates low for a ‘considerable time’. The central bank of course has held its key rate at zero to 0.25 percent since 2008.
While the Fed is backing away from bond purchases, other central banks are embracing them. The Bank of Japan last year ramped up an asset-purchase campaign that goes beyond bonds and into stocks and real estate investment trusts and vowed to keep at it until inflation rises to 2%. The ECB has also started buying financial assets and its president, Mario Draghi has said the ECB would expand the effort if needed to fight deflation.
The ‘Quantative Easing’ program in the US ends with mixed reviews however. While it clearly didn’t cause the inflation outbreak some predicted, it also didn’t clearly lead to a surge in economic output or hiring either.
Non-farm payroll gains have averaged 227k this year a figure that is heading for its best showing since 1999; this has helped push the unemployment rate down to 5.9% in September, just 0.4% above the top end of a range Fed officials consider to be ‘full employment’.
‘Although inflation in the near term will likely be held down by lower energy prices’, the FOMC said in its statement, policy makers determined that the risk of inflation remaining ‘persistently below 2% has diminished somewhat’.
Fed officials say they are prepared to use bond buying again, but disagree about the circumstances that would warrant it. Their attention now moves firmly towards when to raise rates and we wait with bated breath for the next signal of when this might happen, general consensus is not until Autumn 2015 which is in line with the UK but we will just have to wait and see if this is the case.