Holding Pattern Over DC

Will Wednesday be THE day that tapering is announced? And, even if it is, what will it mean for gold prices?

First, it probably will not happen. Too many stars are aligned (or misaligned, as the case might be) for this to be the correct moment.

December is an awkward time of the trading year. Volumes are short, people's minds are elsewhere, and we are hard-pressed to believe the Fed wants to surprise anyone while they're drinking their fourth eggnog.

It very well may be that current Chair, Ben Bernanke, will not pull the trigger so that his successor, Janet Yellen can make her own way through the forest of economic issues that tapering will bring with it. (Not exactly the tapering itself, but the conditions and problems that converting/marketing all those purchased securities will have... there's the real test.)

It is most likely that the FOMC members won't view the current conditions as warranting a change in policy, but may issue a statement that says a) "We are closely monitoring," and b) "Indeed tapering is coming." The latter may be couched in language such as "We are looking forward to the day when we can begin tapering because that will mean good news has really arrived for the U.S. economy."

The Fed may believe, as well, that QE3 is not as big of a deal as many commentators and analysts are saying and thus may be content to float along on the air currents.

Two not very good signs for the world economy: China's industrial growth has slowed and France, the world's fifth largest economy (when factored out from the EU), has most likely slipped back into recession.

Gold first fell today, then recovered, as traders are either taking profits ahead of Wednesday's Fed pow-wow, or, some decided to take advantage of perceived bargain prices and bought, thinking there will not be any tapering.

In an interesting article about India, Al Jazeera reported that gold smuggling into India has soared, more than defeating the government's attempt to stifle imports using tariffs. The sad thing is that the gold being smuggled is "blood gold," metal mined in failed states or regions often by slave labor. The article which can be read here , has an in-depth look at the state of India's finance sector and why gold is so important there.

As always, wishing you good trading,