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Buying Gold and Silver on the Fed

One of the most important trends to emerge in the buying of gold and silver over the past few years is the utter reliance of the gold and silver spot price on the announcements that come out of the Federal Reserve or its many spokespersons. You may recall that in the past six months the Federal Reserve Chairman Ben Bernanke held a press conference, the first ever for a sitting Federal Reserve Chairman. It seemed odd at the time, but if you consider that the Federal Reserve has been the main driver of price in the gold and silver markets through its announcements, you can begin to see a correlation.

Of course, the policy of the Federal Reserve is the determinant factor for the course of the economy. For many intents and purposes, the Federal Reserve is the United States economy. Though we criticize them heavily, sometimes with very good reason, what the Federal Reserve says does influence every financial decision we make.

Perhaps the prescient example of this dynamic and its effect on the gold and silver markets took place about two months ago. Federal Reserve Chairman Ben Bernanke appeared before the Congressional Finance Committee and made no indication of an official round of Quantitative Easing 3, which was expected or hoped for by many investors based on their perceptions of the numbers. The market dived and the resultant correction in the gold market lingered for over a month.

The Fed Chairman never actually said anything about Quantitative Easing. Yet, investors were hanging on his every word, reading into his speech, and deductively making financial decisions based on what Mr. Bernanke did not say. This probably isn’t the best policy for investing, but it is an important trend in buying gold and silver.

The most important thing for investors to remember is that the gold and silver markets are very much long-term markets with gains being realized over fairly large periods of time. The Fed’s long-term projections have been to keep us on a low interest rate through the year 2013. This is fertile ground for the gold market, and should be recognized as such.

While we’re paying so much attention to and banking so much on the Federal Reserve’s announcements, we should probably take into account their long-term policies. In the world of buying gold and silver, the Fed announcements can make spot price difference today, but they make a market difference in the next year.

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