Watch The Federal Reserve For Clues As To Where Gold Is Headed

If you’re into trading gold binary options, now is the time to start paying close attention to the commodity. That’s because, on Wednesday, the Federal Reserve will meet, and the decisions made in this meeting have large implications for the precious metal. Today, we’ll talk about the Federal Reserve’s meeting, why what happens at this meeting will likely lead to movement in the value of gold, and what binary options traders should be watching for ahead.

The Federal Reserve Is Meeting As We Speak

As mentioned above, gold is going to be the commodity to watch ahead, largely because of the United States Federal Reserve meeting. This meeting is actually taking place as we speak. On Tuesday, Federal Reserve leaders met to discuss the state of the United States economy, what to do with regard to interest rates, and most important for many, the Fed’s balance sheet.

The balance sheet at the Federal Reserve sits at $4.5 trillion thanks to bond purchasing in its quantitative easing program. While that policy helped to bring the United States economy back to growth, it definitely didn’t come without a cost. Now that the financial crisis is clearly over, the Fed needs to make this up by returning to a standard monetary policy with higher interest rate and no fueling of the market by the Fed.

As a result, when the meeting ends on Wednesday, the Federal Reserve is expected to explain how it plans on reducing the massive amount of Treasury and mortgage securities that it holds. In a statement, Jim Caron, fixed income portfolio manager at Morgan Stanley Investment Management, had the following to offer…

“That’s what everyone is going to be looking for. I don’t think it’s any surprise that they’re going to be moving by 25 basis points. It’s going to be a question of how they incorporate that with the balance sheet. If they don’t say much about it, that’s going to be viewed as very dovish by the market…”

So, while everyone is expecting an interest rate increase of 25 basis points, that’s not the big story. The big story is how the Federal Reserve is going to deal with its balance sheet following extraordinary monetary policy following the economic crisis.

What This Has To Do With The Price Of Gold

At first glance, it may seem as though the Federal Reserve news has very little to do with the price of gold. However, that couldn’t be further from the case. First and foremost, the Federal Reserve largely dictates the value of the USD, and since gold is priced using the USD, any movement in the value of the currency will likely lead to an adverse reaction by gold. Generally, changing interest rates leads to changing demand, causing movement in the USD. However, considering the largely expected rate increase ahead, experts argue that the reaction is already priced into the market.

The question among economists, analysts and investors alike is how the Fed plans to deal with the balance sheet. If the Federal Reserve is evasive when it comes to explaining their goals, it will be viewed as a bad omen for the United States economy. This would likely lead to strong demand for gold, causing the price of the commodity to climb. On the other hand, if the Federal Reserve has come up with a clear plan for improving the balance sheet, the view toward the US economy will be relatively strong, leading to declines in gold as safe haven investors will build an appetite for risk.

What Binary Options Traders Should Be Watching For Ahead

Moving forward, gold is likely to present several opportunities for binary options traders. However, if you plan on taking advantage of these opportunities, it’s going to be important that you follow the news. In particular, keep a close eye on what happens with regard to the Federal Reserve’s announcement on Wednesday as this announcement is likely to create waves. Beyond the Fed, it’s also a good idea to watch the UK economic data as inflation concerns are leading to market declines, which could increase UK safe haven demand.