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Central Bank Officials Favor Easy Monetary Policies

Release Date: 
Tuesday, March 5, 2013

Gold fell along with equities with the yellow metal trading $3.00 lower at 2:07 p.m. Pacific Time on the New York Spot Market, at $1,574.80 per ounce.  Spot silver was $0.06 lower at $28.62 per ounce.  (Click here for the most current spot prices.)

Dovish comments from central bank officials globally provided some support for gold today though bears outnumbered bulls.  Haruhiko Kuroda, who is nominated to be the Bank of Japan’s governor, said he would take all necessary steps to end Japan’s 15 years of deflation.  Federal Reserve Vice Chairman Janet Yellen said the U.S. central bank should continue with its $85 billion monthly bond purchase program.

“At present, I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment,” Ms. Yellen said in a speech to the National Association for Business Economics.  While there are some potential costs to the purchases, “at this stage, I do not see any that would cause me to advocate a curtailment of our purchase program,” she said.  Ms. Yellen is seen as a possible successor to Fed Chair Bernanke if he steps down when his second-term ends in January 2014.

Fed Chairman Bernanke also commented on the Fed’s current policy, favoring an accommodative stance.  “A premature removal of accommodation could, by slowing the economy, perversely serve to extend the period of low long-term rates,” Mr. Bernanke said in a speech to a Fed research conference.

“It seems as if accommodative monetary policies are here to stay for some time,” said Lance Roberts, CEO of Streettalk Advisors LLC.

Strong U.S. economic data, a recovering Chinese economy and quiet in the euro zone were among the drivers of gold’s fall last month, said Jan Skoyles, head of research at The Real Asset Co.  However, “it is these same factors which are now providing support to the gold price: unrest in Italy’s political world, further bailout talks in Greece, the sequestration [automatic budget cuts] in the U.S. and weaker-than-expected data from China’s services industry have now reminded investors that this crisis still has a long way to run,” she said.  “I suspect many know that no matter the number on the U.S.’s employment figures on Friday, it will not be enough for the [Federal Reserve] and so we can expect QE to continue,” Ms. Skoyles said.

Analysts and traders said gold could attract buyers in the days ahead as U.S. budget cuts take effect following Washington’s failure to avoid automatic sequester cuts.  The cuts "will certainly worry the broader market and could limit the downside in gold," VTB Capital analyst Andrey Kryuchenkov said in a note.

(Sources:   “Comex Gold Gains 10 Cents in Quiet Trade After Seven-Month Low,” Wall Street Journal, March 4, 2013; “Gold up; analysts say investor fatigue has set in,” Wall Street Journal, March 1, 2013; “Fed’s Yellen: Full steam ahead on QE3,” Marketwatch, March 4, 2013; “Gold prices find footing after 3-session drop,” Marketwatch, March 4, 2013; “Gold Advances on Japan, U.S. Outlook for More Stimulus, Bloomberg, March 4, 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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