Gold drifted to a one-week low below $1,380 an ounce Tuesday morning, as silver dipped below $21.80 an ounce, with stocks and commodities broadly flat on the day ahead of tomorrow’s U.S. Federal Reserve decision, with analysts speculating on whether the Fed will give details of when and how it might slow down its quantitative easing program.

“The outlook for the gold price remains negative from a technical perspective,” says Karen Jones, head of FICC technical analysis at Commerzbank.

“Following the mid-April plunge, the market has consolidated tightly sideways in a converging range. We are viewing this as a potential symmetrical triangle. A close below $1,352 will complete the pattern and trigger another leg lower we suspect.”

“We believe that the dramatic gold sell-off in April,” adds a note from Societe Generale, “combined with the prospect of the Fed starting to taper its QE program before year-end, has resulted in a paradigm shift in many investors’ attitude toward gold. This is likely to result in continued large-scale gold ETF selling this year and next.”

The SPDR Gold Trust (ticker: GLD), the world’s largest gold exchange traded fund (ETF), has seen outflows this year amounting to a quarter of the gold it held to back its shares at the start of January.

In Washington, the Federal Open Market Committee begins its latest two-day monetary policy meeting today, with a decision due tomorrow.

“[There is] much speculation as to whether [the FOMC] will detail an exit strategy [from QE],” says a note from Dutch bank ING.

“While there are views that the Fed will want to see bond yields lower, or certainly highlight that policy rates will not be raised for a significant period, we see merit in the view that transparency is the best policy choice – and it is time to more formally outline the normalization process.”

ING also argues that Fed policy uncertainty “has seen soaring volatility destroy the carry trade”, whereby investors could borrow cheaply in dollars to invest in emerging market assets.

Fed Chairman Ben Bernanke meantime has stayed in his job “longer than he wanted” and has “done an outstanding job”, according to President Barack Obama, speaking in an interview broadcast Monday.

Over in the U.K., consumer price inflation rose to 2.7% last month, up from 2.4% a month earlier, figures published Tuesday show. Mervyn King steps down as Bank of England governor at the end of this month. For the 120 months of his tenure, inflation has been above the Bank’s target in 84 of them.

Over in India, the world’s biggest gold buying nation, the authorities “are not at the end of our wits as far as gold imports are concerned,” Economic Affairs Secretary Arvind Mayaram said Monday. “If required, there are other measures that can be taken and they will be considered at the appropriate time.”

India has raised import duties on gold twice this year — taking them to 8% — and has also restricted imports of gold on a credit basis to only those who will re-export it. Gold and silver was India’s second biggest import item last year and has been cited as a major contributor to the country’s current account deficit.

Over in China, the world’s largest stock market-listed jewelry chain Chow Tai Fook today reported a 13% drop in profits for the year to March, a filing with Hong Kong’s stock exchange shows. The company cited “declining confidence of domestic consumers” as a factor behind the fall in profits.

Sales of silver bullion American Eagle coins by the US Mint meantime are set to record their best first-half-of-a year since at least 1986 — the year from which U.S. Mint sales data start — with more than 24 million ounces sold so far this year.

CME Group’s new 1,000 ounce silver futures contract saw 25 lots of the September contract traded in its first day of trading yesterday, with five lots of the December contract traded. By comparison, volume for the standard 5,000 contract was 11,028.

About the Author

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

Nearly 21 months ago, one of the world’s leading analysts and proponents of gold shocked the investment community with the announcement that the yellow metal was headed south.

Most of his colleagues in the industry scoffed. But his loyal followers took action according to his explicit instructions: They bought gold hedges for protection against the decline. They liquidated their mining shares. And then they waited — sometimes patiently, sometimes anxiously — for his next major “buy” signal.

That gold analyst is Weiss Research’s Larry Edelson, and last week, I began this three-part series of fascinating interviews with him. Here’s Part II …

Martin Weiss: Larry, for the sake of those who missed Part I of this interview, please lay out the full dimensions of the opportunity.

Larry Edelson: My analysis tells me the next leg of the gold bull market will not end for three full years. It will not peak until the yellow metal is at $5,000 per ounce or more. And it will spin off a long series of trading opportunities in virtually every investment that’s tied to gold and other precious metals — bullion, shares, ETFs, plus unique trades that most investors are unfamiliar with.

Martin: Starting immediately?

Larry: Too soon to say, but we are getting very close to it, yes.

But I must repeat: Do not jump in prematurely or all the way as so many gold investors have continually done in the past 21 months or so. And certainly not with all of your money.

Martin: OK. Meanwhile, last week, you gave us very practical guidance on the wrong and right ways to buy bullion coins. Can you expand on that now?

Larry: Sure. In addition to the coins I talked about last week, there’s also a variety of gold coins available in much smaller sizes, enabling you to buy gold in relatively small increments of less than 1 ounce. The drawback has always been price: The smaller the coin, the greater the premium.

Thus, as you buy smaller and smaller denominations, you get progressively less and less gold for your money, because the premium is higher. However, some folks in the industry who favor these smaller-denomination coins set forth two counter arguments:

First, they say the premium can be recovered when you resell the coins.

Martin: Is that true?

Larry: Half true, and not always. On average, right now, you’ll probably lose half and recover half.

Look. We’re talking about “fractional coins.” And the market for the full ounce gold coins is far broader, deeper and more liquid than for these fractional gold coins. When you go to sell three years from now, you may even have to accept an additional discount with the smaller coins rather than recover part of the premium lost on the purchase.

The second argument they make is that in an economic catastrophe, the smaller gold coins would be easier to spend or swap for groceries, gas, etc.

Martin: True or not?

Larry: Perhaps. But it’s also possible that in an economic catastrophe, the full ounce coins — because of their wider distribution — would be equally easy (or easier) to spend. But who can know for sure?

Martin: Can we switch from small things to big things? If you’re a large investor and you want to invest in gold bullion in substantial amounts, where do you go?

Larry: Let’s talk about 1,000-ounce bars. Even at the best-priced dealers, you can expect to pay anywhere from 30¢ to about $1 an ounce over spot when you buy them from a good delivery brand, like Engelhard or Johnson Matthey.

However, if you’re prepared to invest substantial sums at one time, you can save almost that entire fee. You can buy gold at just pennies more than the actual spot price: Buying a “spot month” gold futures contract from your regular commodities broker and take delivery of it.

Martin: Can you give us an example?

Larry: The contract will be for 100 ounces of gold and the commissions run between $40 and $100 — which works out to less than $1 an ounce.

The problem is that 100 ounces of gold can cost more than most investors want to lay out at one time. For instance, at $1,400 gold, to take delivery of one futures contract would involve $140,000 (100 ounces times $1,400 an ounce). It also involves buying and taking delivery of a futures contract. Not something I recommend except for the largest of investors.

A better alternative may be to buy directly from a wholesaler. Just be aware of some of the restrictions.

First, most wholesalers require minimum purchases of the precious metals.

Second, most are not set up to service small retail accounts. They are not going to give you advice, nor will they try to help you make a decision or give any other brokerage-type services. If you have a question about what to buy, how much, when and so forth, don’t go to them.

Third, most require payment in advance, before they can even lock in a price. The advance can be sent in the form of a bank wire, cashier’s check or a certified check.

Note that ingots and bars are available in sizes ranging from as small as 1 gram of gold to 10- and 100-ounce bars. Naturally, the smaller the ingot or bar, the higher the premium you’ll usually pay.

Martin: What about the kilo gold bar?

Larry: It’s the unit of choice in almost all international gold transactions. But there are pros and cons.

First, the positive side. Each of the bars carries a serial number. Have your dealer record the serial number and hallmark on your confirmation slip. Don’t keep it where you store the bar. If the bar is stolen, you are in a much better position to deal with the insurance company by having a readily identifiable number to cite, as opposed to reporting that “X” number of unidentifiable coins were stolen.

Also, you’re in a much better position to claim your property should the police ever recover it. So the serial number is a desirable feature of buying kilo bars.

On the negative side, they’re a relatively unattractive way to hold gold. There’s nothing beautiful about a kilo bar, compared with the artistic engravings available by buying coins. In addition, bars aren’t divisible.

Martin: Larry, I have a lot more to ask you, especially when it comes to security and storage. Plus, I want to ask you about other platforms and vehicles that can open up this tremendous opportunity to average investors who don’t want to have to worry about all the pitfalls, premium intricacies, paperwork, legal protections and whatnot. Can we do that next week?

Larry: Absolutely! See you then.

About Martin D. Weiss, PH.D.

The language Bernanke uses in his post-meeting press conference will be interesting.

George Goncalves, interest rate strategist at Nomura, thinks Bernanke will use this opportunity to clarify some communication hiccups that the Fed has been having:

Thus the key event this week is the June FOMC meeting. If they strike the right tone, in our opinion, that should help keep the bullish price-action intact. We believe a Bernanke led FOMC will take this opportunity to make a clear distinction between tapering QE programs versus its commitment to keep Fed Funds rate “lower for longer”. A combination of Bernanke‟s Q&A, an updated SEP forecast (where fed hike expectations can shift to out years) and a clear statement that codifies policy differences while flagging concerns over inflation would set the record straight.

Jon Hilsenrath of the WSJ: The key thing to watch is the Fed’s forecast of the path of the economy.

At the conclusion of its two-day policy meeting on Wednesday, the Fed will release its updated projections of growth, inflation and unemployment.

The evolution of these forecasts is a critical issue. Fed officials are unlikely at this meeting to change their $85-billion-per-month bond-buying program—launched to boost growth by pushing down long-term interest rates and pushing up asset prices, and spurring spending, hiring and investment.

But what they say about the economy will send important signals about what they expect to do in the future. If they maintain confidence in their economic forecasts, it could signal they think they’re on track to begin pulling back the program later this year.

Mike O’Rourke of JonesTrading explains why Hilsenrath is likely spot-on in his assessment:

 We think this article is extremely important and provides a clear path to the correct interpretation of the FOMC’s view.  The key takeaway will be to focus on whether the Fed maintains the forecast released in the March Summary of Economic Projections (SEP) when the June SEP is released.  The reason that we have a high degree of confidence in the Hilsenrath article is that nearly identical sentiments were expressed by another important Fed watcher, Greg Ip of The Economist in a CNBC interview.  Many will remember that Ip was Hilsenrath’s predecessor as the Fed watcher at the WSJ.