The price of gold has increased by more than 2.5 percent so far today after the Federal Reserve announced that it would not change the current structure of its bond buying program. The central bank had been expected to taper the quantitative easing program today. The bank refused to taper on the grounds that the labor market was not yet strong enough to justify a move.
Anticipation of the Federal Reserve announcement had investors lining up on either side of many assets. That caused Gold to go ballistic after the Federal Reserve announced it would not taper the bond buying program. Business Insider published a great picture of the chart moments after the announcement.
The massive rise in gold in the wake of the Federal Reserve announcement was still continuing at time of writing, though at a slower rate than at the moment of consummation detected by Business Insider. Gold has had a rough year in 2013 and uncertainty around Fed policy has not helped the price of the asset.
Today’s increase implies that at least some investors are using gold as a direct hedge to Federal Reserve quantitative easing. The most usual rise for that hedge is that inflation is around the corner. Some investors might be hedging loss of value in the dollar, while others could be simply changing allocations in case QE does go on forever.
Federal Reserve taper failure
The Federal Reserve is currently buying about $85 billion of U.S. bonds every month in order to force money to flow into other types of assets. The program has seen the stock market in the United States recover from the financial crisis, but its effect on the wider economy is controversial.
One of the major goals of the QE program is the return of robustness of the labor market. That was the major reason that the Federal Reserve refused to reduce the program today. The central bank does not yet think that the labor market is strong enough for a change in QE.