Gold price may face additional headwinds in the short-term, the longer-term outlook for the price of gold remains more favorable

In the aftermath of the Fed meeting, although the gold price may face additional headwinds in the short-term, the longer-term outlook for the price of gold remains more favorable. Chairman Bernanke has made it particularly clear that his foremost goal is to prevent deflation from overwhelming the U.S. economy and that he is willing to go to extraordinary measures to fight that battle. The inclusion of the “significant,” wording – coupled with the commitment to “employ its tools as appropriate,” and leave the Fed funds rate near zero through mid-2013 – suggest that the Fed is likely to maintain policies that indirectly benefit the gold price for the foreseeable future.

The gold price tumbled $45.91, or 2.6%, to $1,736.44 Friday morning amid significant weakness in financial markets across the globe. Silver plunged alongside the price of gold, by $2.61, or 6.6%, to $37.01 per ounce. U.S. markets were set to open with large losses, as S&P 500 futures dropped 30.00 points to 1,125.75. In addition to disappointment stemming from yesterday’s Fed meeting, a weaker than expected report on the Chinese economy helped fuel the selling. HSBC’s preliminary China Manufacturing Purchasing Managers’ Index, or “flash” PMI, slid to a two-month low of 49.2 in September, below the 50 level separating expansion from contraction.