Precious Metals and Stocks Sink After Federal Reserve Statements

Wall St. Cheat Sheet

On Wednesday, gold (NYSEARCA:GLD) futures for August delivery, the most active contract, increased $7.10 to close at $1,374 per ounce, while silver (NYSEARCA:SLV) futures for July edged 5 cents lower to finish at $21.62.

Both precious metals were relatively quiet ahead of the Federal Open Market Committee’s highly-anticipated statement. As expected, the central bank will not dial down its bond-buying programs yet.

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The FOMC statement explains, “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished since the fall. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.”

CNNMoney recently polled 39 economists and investment strategists for their predictions about the Federal Reserve’s next major move. Almost two-thirds of the people do not think the central bank will slow its bond-buying before this December. The rest believe a change could come earlier at the September or October meeting. Another survey by USA Today finds that seven of 10 economists predict the Federal Reserve will begin scaling back this year, with the majority of that group saying the first move will occur by early fall.

Following the statement, Fed Chairman Ben Bernanke held a press conference where he said the central bank may moderate the pace of bond purchases later this year, and end purchases around mid-year 2014. His words sent the Dow Jones Industrial Average (NYSEARCA:DIA) and the S&P 500 (NYSEARCA:SPY) to intra-day lows and the selloff continued into the close. Precious metals also declined on the news, with gold hitting a two-year low.

By the end of the trading day, the SPDR Gold Trust (NYSEARCA:GLD) declined 1.2 percent, while the iShares Silver Trust (NYSEARCA:SLV) dropped 1.3 percent. Gold miners (NYSEARCA:GDX) such as Barrick Gold (NYSE:ABX) and Yamana Gold (NYSE:AUY) sank 4.7 percent and 3.2 percent, respectively. Shares of Endeavour Silver (NYSE:EXK) declined 2.5 percent.

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Disclosure: Long EXK, AG, HL, PHYS

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