***Precious Metals Investors Club***

[White Cobra]

A Piece Regarding The Reduction Rumor

Here is a piece from Kitco about how the Feds exit strategy is going to hurt gold. Personally, I think we all know a reduction in QE is economic suicide at this point.

http://www.kitco.com/reports/KitcoNews20130513NC_wsj_fed.html

By Neils Christensen of Kitco News
Monday May 13, 2013 2:31 PM

Gold prices could continue to struggle as investors digest the fact that the Federal Reserve is talking about developing an exit strategy for its quantitative-easing measures.

On Friday, the Wall Street Journal’s Fed-watcher, Jon Hilsenrath, wrote an article saying that the Fed has mapped out a strategy to wind down its “unprecedented $85 billion-a-month bond-buying program.” Hilsenrath interviewed both Richard Fisher, president of the Federal Reserve Bank of Dallas, and Charles Plosser, president of the Philadelphia Fed, to talk about an exit strategy.

Neil Mellor, currency strategist at the Bank of New York Mellon, said that in this environment it could be difficult for gold rally; however, he is not ready to call for a massive selloff as the Fed is still a ways away from implementing an exit strategy.

“I think this is a process were the Fed will take two steps forward and one step back,” he said. “I think the Fed is putting out feelers to see what kind of reaction they see in the market.”

Mellor added that there was some modest market reaction but it has been relatively muted, which is probably what the Fed is hoping for.

As of 1:50 p.m. EDT, spot gold was trading at $1,436.50 an ounce, down $11.60 or 0.80% on the day. At the same time the S&P 500 Index was down slightly more than a point, trading at 1,632. The 10-year Treasury yield was up only 0.028 percentage point to 1.928%.

Mellor said the Fed will be careful because officials don’t want to spook a strong selloff in equity markets, which might not have a major impact on gold prices.

“I think the Feds are faced with an impossible situation so they will continue to walk a fine line for now,” he said.

“I don’t think that gold prices will fall too far,” he added. “There is still a demand for gold, which will help support prices.”

George Gero, vice president and precious-metal strategist with RBC Capital Markets Global Futures, said the Fed’s exit strategy is all about timing. Although the Fed has a plan, there is still a question as to when they will implement it.

In the Wall Street Journal article, Hilsenrath wrote that the Fed will be trying to control expectations, so markets don't overreact to the end of the program.

"I don't want to go from wild turkey to cold turkey," Fisher told the Wall Street Journal. "I think we ought to dial it back."

Gero said he doesn’t expect the Fed to act as any time soon as they haven’t seen any inflationary problems, which is also why gold prices are declining. As soon as inflation starts to rise, gold prices will start to move higher and the Fed will start to implement their exit strategy, he said.

Jeffrey Nichols, managing director of American Precious Metals Advisors, said that any talk of an exit strategy today is too premature. Although the Fed is trying to limit the surprise of an end to its bond-buying program, there is a more likely event that officials will have to increase it to support a weakening economy, Nichols added.

“I think the news on the economy is going to be more disappointing in the future,” Nichols said. “I think the Fed is not going to be too quick to taper off its program. I think gold will rally as expectations of more monetary stimulus grow.

“I think there is a light at the end of the tunnel but it is a lot further way then most people think,” he added.