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Analysts: Ongoing Fed Stimulus Bullish For Gold

Release Date: 
Thursday, January 31, 2013

Gold retreated on mixed news as the Federal Reserve’s continued monetary policies were outweighed by other economic news.  The metal was $11.30 lower at 7:19 a.m. Pacific Time on the New York Spot Market, trading at $1,666.10 per ounce.  Spot silver was $0.33 lower at $31.79 per ounce.  (Click here for the most current spot prices.)

The Fed maintained its monthly $85 billion bond-buying stimulus on Wednesday and reiterated its pledge to continue the program until the outlook for employment "improves substantially."  The central bank opined the recent contraction in fourth quarter GDP was probably temporary. 

"The Fed's statement should have helped gold today but we see a firmer U.S. dollar, weakness in stocks and oil prices, which are all pulling the gold market lower," said Peter Fertig, consultant at Quantitative Commodity Research.

"The continuation of quantitative easing is definitely bullish for gold," said Barnabas Gan, commodities analyst at OCBC Bank.  A break above the $1,700 per ounce resistance level will likely spur further gains, he added.

Investors will next look towards January’s U.S. nonfarm payrolls data which is due on Friday.  "If the payrolls data is favorable, gold prices may see...softening in the near term, but in the long term the continuation of the quantitative easing program will keep prices supported," Mr. Gan said.

Eugen Weinberg, head of commodities research at Commerzbank, said as inflationary pressures become more visible in the second-half, it will lend support to gold prices which could hit $2,000 at some point in the fourth quarter or early 2014.

“A reevaluation of the U.S. economic recovery combined with a reaffirmation of a highly accommodative monetary policy is gold-bullish,” Howard Wen, an analyst at HSBC Securities (USA) Inc., wrote in a note.

"The Fed will maintain its bond-buying policy and we see economic conditions in the euro zone improving slightly. I think we can see more weakness in the U.S. dollar and as a result we may see gold going up a bit more," said Joyce Liu, investment analyst at Phillip Futures in Singapore.

Gold Trades Near One-W eek High on U.S. Economy, Fed’s Stimulus,” Bloomberg, January 31, 2013; “Gold Rises in Asia; Precious Metals Mixed as US Jobs Data Eyed,” Wall Street Journal, January 31, 2013; ““U.S. Economy Unexpectedly Contracts in Fourth Quarter,” Wall Street Journal, January 30, 2013; “PRECIOUS-Gold surrenders gains as euro, stocks retreat,” Reuters, January 31, 2013; “PRECIOUS-Gold holds near 1-wk high on Fed; TOCOM hits record,” Reuters, January 31, 2013; “Gold or Platinum—Which Will Get to $2,000 First?CNBC, January 31, 2013)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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