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Analysts: Quantitative Easing May Support Gold

Release Date: 
Tuesday, March 27, 2012

Gold rose following comments from the Federal Reserve which may signal quantitative easing. Gold was trading at $1696.60 per ounce at 6:57 a.m. Pacific Time on the New York Spot Market with silver at $33.20 per ounce.

"The possibility of accommodative monetary policy if certain conditions, such as employment, do not improve, is a favorable environment for gold," said Bayram Dincer, an analyst at LGT Capital Management in Switzerland. "More dollar liquidity from the Fed would decrease the value of the dollar and in this case gold is considered as a valuable currency substitute." 

"The Bernanke comments suggesting the possibility of further quantitative easing of monetary policy ... pushed the U.S. dollar lower and financial markets in general upwards, and so also gold," said Commerzbank analyst Carsten Fritsch. "The prospect of further liquidity injections should put pressure on the U.S. dollar, and the prospect of continued negative real interest rates should also keep gold supported."

According to Nick Trevethan, senior commodity strategist at ANZ in Singapore, "the weaker dollar is very supportive. Going forward, market sentiment should be more friendly towards commodities right after Bernanke's commentary."  Trevathan also elaborated about upcoming data points and expected Fed comments. "Key to direction, however, will be Chinese PMI data released Sunday, the March U.S. non-farm payrolls and, of course, the Fed meeting, where some in the market at least are expecting a hint about QE," Trevethan said.

Gold mining executives are bullish on prospects for their industry and gold, expecting higher prices ahead. "If you think about the next year, the next three years, the next five years we're in an upwardly sloping gold price environment," said Newmont Mining CEO Richard O'Brien. The Fed's comments show currencies are "going to continue to be cheap, and when inflation comes, it's going to come roaring back and gold will look like an asset class that people should own. Buying it now is the best time to buy it."

AngloGold Ashanti Ltd. CEO Mark Cutifani said Tuesday the price of gold could exceed $2,000 per ounce this year on robust demand in fast-growing economies such as India and China. "With the increasing middle class in China, many Chinese are choosing gold as a way to store wealth, so I don't think that will change," he said.

 (Source: "Gold slightly up, analysts see more upside," MarketWatch, March 27, 2012; "PRECIOUS-Gold prices near two-week high after Fed comments," Reuters, March 27, 2012; "PRECIOUS-Gold eases after rally; Bernanke boosts sentiment," Reuters, March 27, 2012; "Gold May Gain From Two-Week High on Fed Monetary Policy," Bloomberg, March 27, 2012; "Buy Gold Now Before it Gets to $2,000: Newmont CEO," CNBC, March 26, 2012)

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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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