As the FOMC decided to leave the Fed Funds rate at zero, eventually it seemed traders bought the gold market as a safe-haven play.
Fundamentally, what the FED didn't do on this past Thursday spoke volumes about their confidence in the European economy, the Asian economy and, most importantly, our economy. Quite simply, they have no confidence in these markets. This was the most anticipated FOMC announcement that I can remember in some time. Surely, after the Great Recession, after quantitative easing, after Cash for Clunkers, and after bank, car company and insurance company bail outs, the FOMC would finally just begin to let the United States economy walk on its own two feet. All they had to do was raise Fed Fund rate from zero percent (not 3%, 5%, or 10%), but from zero percent to 0.25 percent. One quarter of one percentage point up from...I'll say it again, zero.
That did not happen. Instead the FED sent a message that they don't believe the U.S. economy can walk on its own two feet. At least, that's how I took it and it looks like that's how traders took it.
About an hour after the announcement on Thursday and all the way into Friday, markets began to trade this way as the stock indices fell from the highs and began to sell-off. It then became clear that the "risk-on" trade was off. The energies, currencies, stock indices and grains all fell into the red on Thursday afternoon and into Friday. The beneficiaries of this were the perceived safe havens like the gold, the USD Index and the Treasuries.
Gold is what caught my eye though this past week. Only because was poised for a nice rally despite a stronger USD index. Typically, the USD and the GC trade inversely, but not after this FED announcement. They both went higher and gold rallied from a low in the October futures of about $1,101/ounce on Tuesday to a high of about $1,141/ounce on Friday to close the week at about $1,138/ounce. To me, that was impressive during a "risk off" selloff.
Unfortunately, for a gold bug like me, I don't think this will last. I believe the USD Index and the Treasuries will win out as safe-haven trades in the coming days and weeks and gold futures will sell off like the rest of the commodities and future markets. We shall see. Hey if the FED has no confidence in the markets, then why should I? I want to make this perfectly clear, my opinion is that the announcement on Thursday or lack thereof, was a big mistake by the FOMC.