Precious metals little-changed following yesterday’s short-covering bounce

Gold and silver both started the day a touch weaker following Tuesday’s short-covering rally. But prices recovered somewhat in the afternoon as gold found decent support at $1255, a level which had previously offered resistance. This behaviour of price thus suggests the technical picture is continuing to look constructive for the bulls for now. But there is little in the way of economic data for the financial markets to get excited about, so we are likely to see some more profit taking and range-bound price action for the remainder of today’s session. In fact, this will most likely remain the theme until that FOMC meeting is out of the way next Wednesday.

The general consensus is that gold prices would come under renewed selling pressure if the Fed does in fact decide to taper QE this month. I however don’t think that gold would necessarily suffer much for we don’t know the scale of it and that a small reduction is already priced in anyway. In the grand scheme of things, it wouldn’t really make a major difference if tapering were to commence next week, or in one of the months during the first quarter. In fact, some would argue that if increasing QE failed to underpin gold prices, why would reducing the programme undermine it now?

There are obviously several other factors in play besides QE that is holding back precious metals, not least the on-going trade restrictions in India. But for me, one of the main factors is the rallying stock market which is helping to discourage investment demand in gold and silver, assets that pay no interest or dividends and cost money to store. Thus unless we see a generous correction across the equity markets, precious metals would most likely remain depressed.