Ben Bernanke, tapering & gold traders

September 21, 2013

SAN FRANCISCO (Sept 21)   If there is one major lesson to be learned from the Fed's decision on Sept. 18 it is what Federal Reserve officials have been repeatedly been saying, but not many heard, the start of tapering is data dependent.

Anybody listening now?

While "taper watch" continues to run rampant among traders, U.S. Fed Chairman Ben Bernanke highlighted the next act likely to steal center stage and a factor that Fed officials are monitoring closely. The current U.S. budget battle and debt ceiling debate is heating up with the budget year looming large on Sept. 30 and the nation nearing its debt limit ceiling in mid October.

One of the factors Fed Chairman Bernanke mentioned in his post-FOMC meeting press conference was the risk that the fiscal drama could weigh on the U.S. economy. The Fed's official forecasts remain fairly optimistic and a difficult debt ceiling debate could roil markets, put in question the U.S. credit ratings and weigh on business investment and hiring.

"We don’t expect as buoyant an H2 as the FOMC; our forecast is for GDP growth of 1.8% q4/q4 in 2013, whereas the Committee’s central tendency forecast is 2.15%," wrote BNP Paribas in a research note this week.

If anything trips up the already sluggish pace of economic growth, tapering could be pushed even farther out—perhaps into early 2014. The point is that the Fed has been telling traders and the market about its intentions. With all the criticism swirling around the Fed amid a supposed lack of proper guidance, Bernanke reminded reporters that he never mentioned the September meeting date as the time to start tapering.

The Fed was doing its job earlier this year—preparing markets, communicating and broadcasting its intentions. But, the Fed always said the start of tapering would be data dependent.

Don't forget U.S. nonfarm payrolls data came in weaker than expected in August at 169,000 new jobs, and the July figure was downwardly revised to a 104,000 reading. It's been quite a while since we've seen a 200,000+ non-farm number. Yes, the overall unemployment rate has been slipping in recent months, most recently to 7.3% in August.

But, that is in part due to long-term job seekers simply dropping out of the workforce. "If the labor force participation rate remained at July levels, the unemployment rate would have increased to nearly 7.6%," wrote analysts at

The September U.S. unemployment report, due out Oct. 4, will be closely watched as always, but gold traders would be well advised to stay apprised of the debt debacle out of Washington. Looking back to 2011, the political standoff and bickering over that year's debt ceiling triggered a swoon in the U.S. stock market and was a factor supporting gold prices to rally to all-time highs.

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