January 29th Midweek Gold Market Update

Gold is up sharply in the early morning hours of Wednesday while silver too is posting gains. Safe-haven demand for precious metals has seen a visible boost over the last few days, something that can be directly linked to the very real possibility that the Fed will make another tapering announcement later this afternoon. Emerging currencies have been under a lot of pressure this week and in order to ease the nerves of the marketplace both the Turkish and Indian central banks raised their key interest rates.

Investors will continue to hold steady as they await the conclusion of today’s FOMC policy meeting.

Periphery Currencies Striving for Balance

So far this week has been a fairly interesting one, with gold hitting 9-month highs on Monday while periphery currencies and world equities suffered. Things more or less corrected themselves on Tuesday, but the pressure on emerging market currencies is still hanging around. After Monday’s large sell off of the Turkish lira and the Indian rupee, both countries’ central banks convened for emergency policy meetings.

In the early morning hours of today it was announced that both central banks decided to raise their key interest rates. Turkish officials made a severe change to the nation’s lending rate, pushing it up by a staggering 12%. Indian officials also raised their key lending rate, but not by the margins seen in Turkey. Both of these moves were made in an effort to fight off rising inflation. For the moment, it seems as though the raising of lending rates has eased the somewhat tense emerging markets, but with the FOMC meeting concluding this afternoon that all could change in the blink of an eye.

Equities Continuing to Feel Pressure

Emerging market currencies are not the only ones feeling pressure as of late seen in the recently large sell off of equities in Europe, Asia, and the US. Following the lead of US stocks last Friday, European and Asian markets kicked off this week posting major losses as profit-taking from the recent bullish stock market run was abounding. Now, as these same markets have become more stable, the fear is that further reduction to the US’ Quantitative Easing monetary policy as well as recently poor Chinese economic data will translate into liquidity problems across the globe.

For this reason, all eyes will be on the FOMC this afternoon as they address the public in the wake of their most recent policy meeting. At this juncture a large majority of the marketplace is anticipating that the Fed will announce another $10 billion reduction to its monthly bond-buying policy. If this expectation comes to fruition QE will have been reduced from $85 billion in bond purchases per month to $65 billion in barely more than a month’s time.

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