Gold, silver, and the FOMC meeting today: Precious metal prices were fairly steady Wednesday morning awaiting the typically market-moving statement from the Federal Open Market Committee (FOMC) meeting today. The spot gold price was last trading down $0.90 at $1,271.50. July silver prices were last quoted up $0.003 at $19.735 an ounce.
Over the last several years, investors have shown a keen interest in shiny assets as the U.S. Federal Reserve liberally printed money and distrust in dollars grew. But that interest has waned as the Fed slows its bond buying.
Now an FOMC meeting can be a strong headwind for gold and silver.
Following the Fed's March meeting, silver tumbled 2.3% to $20.355. Gold slipped some 10% to $1,294.75 over the next few trading sessions. The rout came after Fed Chief Janet Yellen said the central bank's stimulus program could end this fall, and benchmark interest rates could rise about six months later.
Both precious metals also dipped in the days following the Fed's April 29-30 meeting, in which the Fed reiterated its stance.
The precious metals could come under pressure Wednesday, but it's not Fed action, or lack thereof, that could weigh on gold and silver. There's little doubt about the Fed continuing its reduction in bond purchases. The central bank is widely expected to trim its bond buying to $35 billion a month from $45 billion.
Instead, what matters is the Fed's tone.
As has been the case of FOMC meetings, precious metal reactions could be sharp and swift depending on whether a hawkish or dovish sentiment prevails with central bank members.
"Obviously, any hints toward interest rates rising sooner than the market previously thought could throw a monkey wrench into the gold rally," Dave Meger, director of metals trading with Vision Financial Markets, told Kitco.
"Really, we are concerned about what the Fed is going to say," Meger added. "Are we still in a situation where we're concerned about growth and this warrants keeping interest rates low for an extremely extended period of time? Or will we see some comments from the Fed in regard to slight inflationary pressures... and will this prompt them to make some statement about this...?"
While the central bank is also expected to lower its full-year 2014 economic growth forecast, falling unemployment and rising inflation could prompt policymakers to hint at a slightly more rapid rise in interest rates. The mere suggestion could send gold and silver slipping as rising interest rates make it more expensive to hold alternative assets like precious metals.
Here's what our trading expert Shah Gilani said ahead of the FOMC meeting conclusion:
"Most importantly, markets will be listening for the Fed's growth projections. If the FOMC gives any indication that the trajectory of growth is improving, which is what they've been saying in spite of the horrible first-quarter GDP number that keeps getting revised downward, then they're signaling they are staying the course on ending QE."
Hawkish hints could also send silver prices sliding, as the white metal tends to trade in tandem with gold.
But one thing that could lead to a shift in Fed sentiment in coming months is more lowered growth forecasts.
The International Monetary Fund (IMF) issued a dismal report Monday in which it trimmed its 2014 forecast of U.S. growth. The IMF now sees the world's largest economy growing 2% this year, down from an April estimate of 2.8%.
Money Morning Chief Investment Strategist Keith Fitz-Gerald said Monday he sees this downward revision providing fodder for a dovish policy on interest rates in coming months - something that would support gold and silver in the second half of 2014.
"I've got to believe that Yellen will make a statement or statements in the next few months now that she has a growing body of supposedly 'independent' research to fall back on in addition to her own team's half-baked economic data," Fitz-Gerald said.