Gold Price Forecast – All Eyes on the Fed

All eyes are now on the Federal Reserve meeting this Wednesday at 2pm eastern time.

Why is the pending meeting so important?

Because the Fed is expected to announce the tapering of its $120 billion per month bond buying program, which began at the onset of the Coronavirus pandemic last year.

Exactly how much of a reduction in bond buying will the Fed announce?

We cannot be sure yet; however, the mainstream consensus is that a reduction of $10 – $20 billion per month for the coming 1 – 2 quarters is likely.

 

Bond Taper and Gold Price

It is important to remember that the US Federal Reserve has no actual reserves with which to buy bonds in the first place. Any “bond buying” is a euphemism for printing-money, or the electronic equivalent thereof.

Bond buying is thus inflationary, because the Fed creates money out of thin air with which to purchase the bonds, which subsequently suppresses interest rates below true market values.

A tapering from $120 billion per month, to, for example, $110 billion or $100 billion, is thus relatively less inflationary than if the Fed had kept its bond buying program at current levels.

Generally speaking, less inflation is seen as a negative for gold, and conversely, positive for the value of the US dollar.

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