While the “big three” global central banks all have meetings next week, all eyes will be glued on the Federal Reserve Chairman Ben Bernanke on December 18 for the release of the meeting statement and his press conference. The big question, of course, is will the Fed taper its monthly asset bond purchases at this meeting, or will it wait until 2014? Either way, gold prices are likely to see volatile trade.
This week, Nomura conducted a client survey and concluded that “The market is relatively evenly split on expectations on the start of tapering among December, January and March meetings. Very few expect the FOMC to start tapering after the March meeting. The most popular response was 37.0% for a December start, which was higher than we were expecting,” Nomura analysts wrote.
How much tapering could be seen? “On the size of taper, the expected values of the first cuts to monthly UST and MBS purchases are ~$9bn and ~$4bn, respectively,” according to the Nomura client survey.
What are the big picture macro factors gold traders need to remember here?
1. Tapering is not tightening.
2. Tapering is coming, either in December or early 2014.
3. Expansive monetary policy is not the only reason investors purchase gold.
4. There are a bevy of risks lying ahead for the Fed with its “exit” strategy from these historically significant monetary policy actions.
5. The gold market is close to major multi-month chart support.
Drilling down to the December meeting, gold could be set up for a short-covering type of rally move if no tapering announcement is seen. From late August until early December, Feb gold has slipped from $1,433.70 to $1,201.10, or just over 16%. The start of tapering is already priced in. A statement of no tapering now would likely unleash short-covering higher in gold prices.
On the flip side, if the Fed does begin tapering its asset purchases, it won’t be any surprise to anyone. If a knee jerk sell-off reaction in gold does appear, the market is sitting just above major long-term multi-month support at the $1,187.90 zone, from late June. A brief test of that floor could be seen, but buying would likely emerge on a dip to that low from bargain hunters, physical buyers and speculative short-term trades looking for a volatility play.
The daily Bollinger bands have narrowed slightly in recent days as volatility has been contracting in gold prices. Get ready, a big explosion in volatility could be seen next week—with both tapering and no tapering offering good movement for short-term traders, and possibly a buying spot for longer-term physical gold investors.
Kira Brecht is managing editor at TraderPlanet.
By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht
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