Precious Metals Wait Patiently on Fed’s Exit Strategy

On Monday, gold (NYSEARCA:GLD) futures for April delivery, the most active contract, increased $1.10 to close at $1,578 per ounce, while silver (NYSEARCA:SLV) futures for May fell 10 cents to finish at $28.85.

Both precious metals were relatively quiet, as speculation continues to build on how the Federal Reserve will conduct an exit strategy, if ever. The central bank’s balance sheet has exploded to more than $3 trillion. On a recent trip to Capitol Hill, Fed Chairman Ben Bernanke claimed a review of an exit strategy will be done “sometime soon.”

The Fed is walking a tightrope. Dean Maki, chief U.S. economist at Barclays tells Bloomberg, “If the Fed doesn’t withdraw quickly enough, there’s a risk of overshooting. If the Fed gets rates back to a typical level and the economy is back to what’s regarded as normal, does having an expanded balance sheet have a notable effect on the economy, on asset markets, even once rates are normalized? We haven’t really had that situation in the U.S. before.”

By the end of the day, the SPDR Gold Trust (NYSEARCA:GLD) closed 0.18 percent in the green, while the iShares Silver Trust (NYSEARCA:SLV) edged 0.09 percent higher. Gold miners (NYSEARCA:GDX) such as Yamana Gold (NYSE:AUY) and Barrick Gold (NYSE:ABX) fell 0.49 percent and 0.10 percent, respectively. Silver names such as Hecla Mining (NYSE:HL) and Endeavour Silver (NYSE:EXK) gained 0.94 percent and 0.35 percent, respectively.

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Disclosure: Long EXK, AG, HL, PHYS