As expected earlier that the FED chairman Ben Bernanke may hint about tapering the bond buying measures, so did he in the U.S session on Wednesday. However, the most important aspect of this speech was that he talked about this matter by opening up the facts in real where he avoided using such words that could cause huge speculative volatility in the market. The U.S dollar did get stronger against the major currency pairs and gold, but later retracement was seen of that move.
Ben Bernanke said that for now the bond purchasing would continue but tapering of such a plan may start by the end of this year; however, this is not any bottom line as the policy may change according to the incoming economic data releases time to time. The policy would be highly accommodative as long as the labor market doesn’t get stronger and the inflation target of 2 percent is achieved. Provided this happens luckily, then tapering of bond purchases would have to be initiated.
Housing Sector Slowdown
Yet another indication of the U.S. economic activity slowing down in the second quarter of 2013 came out in the U.S session on Wednesday as the U.S housing starts and Building permits data came, both worse than expected. The building permits fell to 0.91 million in the month of June from its 0.99 million level in May, whereas the housing starts fell to 0.84 million from its previous 0.93 million reading. Remember that these readings are the lowest since the month of August 2012, which may concern the investors as to why such sudden slowdown in the housing market was seen despite satisfactory consumer sentiment.
Why Analysts are Dovish on Gold
Analysts these days, whether they are from the world’s largest investment banks or any other prestigious university, are being dovish on the metal that constitutes to around 76% of the United States reserves. Campbell Harvey from Duke University states that the precious metal may not remain that precious in the medium term to long-term, as it could fall further to the $800 an ounce level, which means it can lose its charm by more than $500 as it is currently playing around $1280 an ounce. He points out that there are historic cycles that tend to repeat after every 10-15 years and we are now in one of those cycles, so expecting the plunge in gold’s price is nothing unusual at this moment. He points out that China is the biggest demanding country of gold, but its economy is slowing that means less demand for gold.