How exactly will tapering affect gold bullion investment?

Next week the FOMC will meet for one of their eight scheduled meetings. It is this particular meeting that has had traders, market commentators and investors almost in frenzy as they try to predict the outcome. It seems everyone is convinced that tapering will go ahead, as of next week, and the gold bears believe that this will signal gold’s demise.

Given the drop in the gold price each time tapering is merely hinted at, one might not be surprised at this prediction. However, as we have learnt since April’s gold price drop, gold investors continue to stock up on gold regardless of what they pay for it. We believe the same will be the case if and when tapering begins.

Tapering will not stop gold buying

Our new research suggests that tapering, irrespective of the gold price’s response, will not have a negative effect on gold bullion investments.

A month ago we asked our clients and readers how tapering would affect their approach to their gold investments.

We gave them five options to choose from with their reply:

I will start selling heavily

I will sell a little

I will not change my holdings

I will buy more

I will buy lots more

The response was, in a word, bullish.

The belief that gold investing will cool-off once the Fed cuts back asset purchases has its roots in the theory that says investors only buy gold as a reaction to the FOMC’s decisions. But our data shows that this is a misunderstanding.

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