The reason is simple. In the last several meetings we were under the assumption no new QE would be announced. We would use gold to gauge whether or not the Fed Chairman was leading us on (or not) to more QE in the future during his press conference. In past press conferences it was easier to interpret what the market was expecting to by simply watching gold rather than hanging on every word the Fed Chairman Bernanke was saying. If gold rallied, the market was expecting a “more accommodative” Fed, or visa versa (in very simple terms).
Today there is such a divide amongst analysts and economists whether or not the Fed will or will not conduct another round of QE. Therefore it is do or die time for the central bank, and gold will react accordingly. Unfortunately for Gold bulls, if the Fed does not act (or meet some whisper number satisfactory of the market’s expectations for more asset purchases) gold could likely give up its recent gains that have been made in anticipation of getting another round of QE today.
My eyes will be on the FX market. The USD is at major support here, and no QE3 would signal a bounce in the USD index. Another round of QE from the Federal Reserve and the USD would come immediately under pressure, at least initially.
Disclaimer: I will not have any open USD positions ahead of the FOMC decision today, however I am pretty sure I will be long or short immediately following today’s central bank decision.