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Analysts Say Quantitative Easing May Support Higher Gold Prices

Release Date: 
Tuesday, October 23, 2012

Gold saw downward pressure as the euro fell after a credit downgrade of five Spanish regions.   Gold was $20.50 lower at 7:55 a.m. Pacific Time on the New York Spot Market, trading at $1,710.00 per ounce.  Spot silver was $0.59 lower, trading at $31.96 per ounce.  (Click here for the most current spot prices.)

“The dollar has been stronger and that’s one of the reasons why gold has been under pressure,” said Afshin Nabavi, a senior vice president at bullion refiner MKS Finance SA in Geneva. “It could be a healthy correction. It’s just a matter of time before gold can reach $1,800 an ounce.”

Amarok Capital Gold Options Trader Mihir Dange said tha,t after the last Fed Open Markets Committee (FOMC) meeting, gold prices rose $55 per ounce.  He sees a high probability of at least a $20 move higher in gold following the FOMC meeting ending Wednesday.

Deutsche Bank said in a commodities report that, after QE1 and QE2 were announced, gold prices rallied up to 15% higher for a period of up to 50 trading days. If this scenario were to repeat with the current QE3, gold prices could rise to $1,900 per ounce by the end of October.

Gold has the potential to break the all time high of $1,921 per ounce in December, according to Saxo Bank.  “With the open ended nature of quantitative easing, part three, we see the potential for gold reaching the 2011 high at $1,921 per ounce during December following an initial period of consolidating as $1,800 offers strong resistance. Into 2013 the rally may eventually take us up and above the physiological barrier of $2,000 before reaching a technical target of $2,075,” the Danish investment bank said.

UBS analyst Edel Tully said that, while a faster pace of economic growth was possible, the improvement is unlikely to be fast enough for monetary policy to normalize.  "Our economists believe that global growth, production and trade are bottoming out, but they also expect economic activity going forward to be restrained by a combination of de-leveraging in developed markets, decelerating growth in some emerging markets, and overall policy uncertainty," she said in a UBS research note. "Further, the market appears to be underestimating the benefits of QE3 on gold and the Fed's overall easing bias, particularly the potential for QE4 to replace 'Operation Twist' when the latter expires at the end of the year." 

(Sources: “Gold Falls as Strengthening Dollar Curbs Investor Demand,” Bloomberg, October 23, 2012; “Has QE3 fatigue set in to the gold market? ,” Mineweb, October 23, 2012; “PRECIOUS-Gold hits 6-week low as equities weaken, dollar firms,” Reuters, October 23, 2012; Physical Demand for Gold Fueling Spike,” Bloomberg, October 22, 2012; “You can see $1,900 Gold by October end, if QE history repeats: Deutsche Bank,” Commodity Online, October 20, 2012; ’Gold has potential to break all time high during December,’ Commodity Online, October 15, 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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