This more optimistic 2014 US economic outlook is what drives our economists’ expectations for tapering next year (whether it starts in December, March or June), which combined with a stronger dollar and weaker emerging market currencies, suggests that the investment and monetary demand for gold will create significant downside risks for gold prices in 2014. Accordingly, we are maintaining our end of 2014 gold price target of $1050/toz.
Why Barclays analysts see a December taper, and Merrill Lynch sees January reduction
October 18, 2013, 11:44 AM
Getty ImagesFrom left, Yellen, Obama and Bernanke
Now that the U.S. has avoided defaulting on its debt, markets can return to a favorite obsession: the Great Taper Watch of 2013.
Although job gains have been somewhat lackluster, and Washington’s budget deal promises a return to fiscal drama in a few months, the Federal Reserve could start tapering its massive asset-purchase program this year, according to a Friday research note from Barclays analysts.
“We think the Fed’s taper decision will ultimately be tied to U.S. economic data and December remains the most likely timing for tapering,” Barclays analysts wrote, citing their expectation that job creation will strengthen in the fourth quarter.
“Any strengthening of payroll growth relative to July and August, along with a surprise on the upcoming budget negotiations, could pave the way for a reduction in asset purchases later this year,” according to Barclays analysts.
However, they added that that recent events have cut the likelihood of a December taper given that U.S. lawmakers’ agreement “leaves fiscal risks on the horizon in” the first half of 2014.
A Financial Times article (registration may be required) lays out the case for a possible December taper if data are strong enough. Capital Economics analysts created a table showing the reasons for and against tapering at the next few Fed meetings.
However, at Bank of America Merrill Lynch, analysts expect the Fed to taper its $85-billion-per-month asset-purchase program next year, with a cut of $10 billion in January. They noted that it’s more likely that a taper cut could come after January than before, and that there will be a “super-slow” exit from the program.
“The shutdown has created a hole in the data stream and likely slowed near-term growth and employment. Further, the current plan just kicks the budget and debt limit standoffs down the road,” Bank of America Merrill Lynch analysts wrote. “The Fed in our view still could taper in January…But disappointing data — whether caused by further brinkmanship or not — could postpone a taper until later in 2014.”
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