The Impact of Federal Stimulus Measures on the Price of Gold

The Impact of Federal Stimulus Measures on the Price of Gold

 

Historically, the value of gold and fluctuations in its price have been linked directly to the wider economic performance. As a general rule, the value of gold tends to be most resolute during periods of recession, as investors look to commit their capital into physical assets that deliver genuine financial security.

 

The most recent statistics underline this trend, with the price of gold set the retreat from a near three-month high in the face of measured stimulus tapering in the U.S. A string of poor data releases had forced the government to initially reconsider their approach to stimulating economic growth, only for the Federal Reserve to reaffirm their commitment to restoring long-term growth.

 

The Facts and Figures: Gold Values in 2014

 

It was during the last week that the price of gold hit a three-month high, amid rising global shares and continued economic uncertainty in the U.S. While the Federal government had spoken at length during the first financial quarter about tapering their stimulus measures and laying the foundations for more sustainable, long-term growth, underperformance within the labour market has persuaded them to reconsider their stance. As a result on this, investors were encouraged to believe that the ultra-easy stimulus policy would continue for the foreseeable future.

Incoming Federal Reserve Chair Janet Yellen performed a sharp-about turn this week, however, by reiterating the U.S. Central Bank’s commitment to a measured tapering of its gold-friendly stimulus policy. While Yellen has stated that has a strong belief in the current bullion and monetary policy measures, however, the sudden drop in gold prices has forced many to question the wisdom of her decision making. More specifically, it could trigger a sudden rise in interest rates and force investors to develop a more risk-averse approach in the financial markets.

Does Gold Represent a Good Investment in 2014?

The decision to taper bullion stimulus measures will only serve to undermine the appeal of gold as an investment opportunity still further. While the presence of under-employment may have caused growth in the labour market to slow, investors have continued to disregard this and similar macroeconomic factors as being insufficient to derail the tentative global recovery. This has had a direct impact in reducing the appeal of gold, and the sudden depreciation in value will force a growing number of investors to consider alternative precious metals and commodities.

If it would be fair to say that gold holds minimal investment appeal as we approach the second financial quarter of this year, however, it is worth considering the performance of additional market options such as silver and platinum. The former, which has experienced considerable growth during the last eighteen months fell by 0.3% in the wake of recent events, while the latter gained a respectable 0.1% amid global political issues. The upshot of this appears to be that investors are likely to avoid the precious metal market for the foreseeable future, at least until the U.S. economy has adapted to its new monetary policies.

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