Gold and Silver Outperform Everything as Fed Keeps QE Unchanged

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On Wednesday, gold (NYSEARCA:GLD) futures for December — the most active contract — declined $1.80 to close at $1,307.60 per ounce, while silver (NYSEARCA:SLV) futures fell 22 cents to finish at $21.56. However, both precious metals reversed losses once the Federal Open Market Committee released its long-awaited statement.

That arm of the U.S. Federal Reserve, responsible for open market operations, concluded its two-day meeting Wednesday afternoon. Most people were expecting the Federal Reserve to dial down its bond-purchasing programs, but that’s not what the central bank delivered. Monthly bond purchases will continue as normal, with $40 billion in agency mortgage-backed securities and $45 billion in long-term Treasuries. Most economists and analysts expected a monthly bond taper of about $10 billion to $20 billion.

The FOMC statement says: “Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.”

 

The central bank first launched QE3 last September, buying agency mortgage-backed securities at a pace of $40 billion per month. The program is open-ended and set to continue for as long as necessary. Three months later, the Federal Reserve announced it would purchase $45 billion of long-term Treasury securities, known as QE4. It also decided to keep interest rates at historic lows as long as the unemployment rate remains above at least 6.5 percent. Most Fed officials don’t expect rates to start rising until 2015 or later.

Precious metals started to spike seconds before the official FOMC statement was released. By the end of the trading day, shares of the SPDR Gold Trust (NYSEARCA:GLD) jumped 4.4 percent while the iShares Silver Trust (NYSEARCA:SLV) gained 6.4 percent. Gold miners (NYSEARCA:GDX) Barrick Gold (NYSE:ABX) and Yamana Gold (NYSE:AUY) increased 9.7 percent and 8.8 percent, respectively. Meanwhile, Endeavour Silver (NYSE:EXK) shares surged nearly 17 percent.

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Disclosure: Long EXK, AG, HL, PHYS

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