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The Taper Is Coming: Top 3 Ways to Play Fed Tapering

One precious metal to buy long, and two broader plays to short

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Buckle your seatbelts and batten down the hatches. A growing cadre of Wall Street analysts is predicting that the Federal Reserve will finally taper its ongoing $85 billion-a-month QE3 bond purchase stimulus at its policy meeting on Wednesday.

arrow-with-dollar-signIn notes to clients this week, economists and strategists at Deutsche Bank and Capital Economics highlighted the fact that the major worries keeping the Fed on hold back in September and October have disappeared.

Monthly payroll growth has reaccelerated as the unemployment rate has dropped to 7% — a level Fed chairman Ben Bernanke fingered back in June as the rate that would prevail when QE3 ended. Congress is working in a bi-partisan fashion, removing the threat of another disruptive government shutdown in January. New homes sales have been strong. And the bond market seems to have settled into the idea that the slowing of the Fed’s long-term bond purchases doesn’t mean that short-term interest rates are going to be raised anything soon.

So if the much dreaded and delayed taper is finally going to happen, how should investor play it? Here are three ideas.

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