MARKETS FALL ON FED MINUTES, BUT MERRILL IS BULLISH
July 12, 2012
Gold prices fell along with equities on Thursday after minutes from the Federal Reserve's most recent policy setting meeting provided no indication the central bank was on the verge of providing additional liquidity. The euro, fell below $1.22 to a two-year low, also pressuring gold. Gold was $18.90 lower at 7:43 a.m. Pacific Time on the New York Spot Market, trading at $1,578.60 per ounce. Spot silver was $0.34 higher,, trading at $27.25 per ounce. (Click here for the most current spot prices.)
The minutes of the Fed's June policy setting meeting showed the governors were split as to whether the U.S. economy required additional monetary easing or Treasury bond purchases to stimulate the economy. The recovery might need to weaken further for a consensus to build within the Fed Open Markets Committee (FOMC).
Francisco Blanch, Head of Global Commodity & Multi-Asset Strategy Research at the investment bank, says he expects the Fed to initiate an asset-purchasing program of as much as $500 billion in the second half of the year, which will drive spot gold much higher by the end of the year.
"We think that $2,000 an ounce is sort of the right number," Blanch said. "We believe that ultimately the Fed will be forced to do quantitative easing. If it happens in September, as our economists expect, we will get a rally sooner in gold. If it happens after the election (in November), we will get the rally a little bit later; probably we will touch $2000 an ounce sometime next year.
Will Rhind, head of US Operations for ETF Securities, says gold remains a safe haven investment despite the strong run in Treasury prices. He cites central bank purchasing of gold as a major supporting factor for prices.
(Sources: "PRECIOUS METALS: Gold Down on Disappointment, Euro Weakness," Wall Street Journal, July 12, 2012; "Gold falls 1 percent after Fed gives no hint of stimulus," Reuters, July 12, 2012 "Gold to Hit $2,000 by Year-End on More Fed Easing: Merrill," CNBC, July 11, 2012; "Gold Still a Safe Haven," The Street, July 11, 2012)