Gold...Silver...The Fed...Oh My!

It was another tough day for the precious metals as the December Gold contract once again found itself under selling pressure, trading down .41% to $1327. This wave of selling coming only three trading days after a Federal Reserve announcement (or non-announcement for that matter) where they confirmed that they would continue pumping money into the economy at a clip of $85 billion per month. Immediately following the announcement we saw the December Gold contract test $1375, only to have it give up two thirds of those gains since that time.

For those Silver bugs out there, you found yourself in an even more depressing predicament. Immediately following the Fed's announcement, the December Silver contract broke through the $23.25 level and traded just shy of $23.50. Three trading days later and the December Silver contract just settled at $21.857, down almost 7% since the high it experienced last Wednesday.

So what should one make of this thumping in the metals? Shouldn't the Fed's decision to continue with their unconventional stimulus program and printing of money push the prices of silver and gold higher? Ah, one would certainly think so, however the market is smart enough to realize that all the Fed has done is simply buy time for what will be an inevitable taper here in the future. Now...what defines "the future" remains a mystery. However, the "mystery" around the date, whether October of this year or January of 2014, is not enough to prop up the precious metals. The bottom line is that a taper is in the cards, and the longer-term narrative of downward price pressure for Gold and Silver remains in place.

Analysts from both Citigroup and Morgan Stanley confirmed this thesis today as they came out with reports forecasting Gold prices between $1200 and $1350 for 2014. Their rationale behind the forecast included, "waning investor appetite for risk and inflation hedge, challenged physical demand, and a rising USD."

While I would love to say that Gold has another leg to the upside, and could re-test that $1400 level, I think that the inevitable taper will keep a lid on prices for the foreseeable future. With that said, I tend to believe that we will continue to see selling pressure in both of the metals in the weeks ahead, and almost certainly on days when we have representatives of the Federal Reserve speaking. So for those of you looking to step in and play gold and silver from the long side, make sure you are looking protect yourself to the downside vis-a-vis options or an alternative hedge of some sort.

Travis McGhee


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At the time of publication, Travis McGhee held positions in GLD, SLV.