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Expectations of Easy Fed Policy Support Gold

Release Date: 
Monday, April 11, 2011

Gold prices reached a record high temporarily on Monday as expectations the U.S. Federal Reserve will lag other central banks in tightening monetary policy caused the dollar to fall. The U.S. economy is still not strong enough for the Fed to start reversing its extremely accommodative monetary policy, Fed official Janet Yellen said on Saturday. Analysts from Phillip Futures, UBS, RMG Wealth Management, BNP Paribas and KEB Futures commented on the Fed and other factors influencing gold prices.

"Comments from Fed members, both voting and non-voting, in recent weeks and over the weekend have only served to highlight the lack of agreement on the direction of monetary policy," said UBS analyst Edel Tully in a note. "The gold community is granting a greater possibility to further quantitative easing post-June, and the lack of synergy among Fed officials only adds weight to these expectations," she added."

"I think there is a good chance that gold could hit $1,500 an ounce within this quarter. And perhaps even higher if we see the weakness in the dollar persist and the Federal Reserve continues their relatively easy monetary policy," said Ong Yi Ling, investment analyst at Phillip Futures in Singapore. “A weak dollar increases the appeal of gold as a currency alternative," he noted. "Precious metals have been benefitting greatly from the weakness of the dollar and the whole diversification away from currencies," Stewart Richardson, CIO at RMG Wealth Management said.

"Gold investor interest is likely driven by ongoing concerns about inflationary pressures, both in emerging and developed economies, sovereign debt levels and economic uncertainty, notably in the light of current high oil prices," said BNP Paribas analyst Anne-Laure Tremblay.

"Global monetary policy - not only the U.S. - is one of the key themes for gold in 2011," she added. “For now, more and more investors are looking to precious metals as a shelter," said Chae Un Soo, a Seoul-based trader at KEB Futures Co.

(Sources: “Gold Hits Record as Dollar Dips; Focus on Fed," CNBC, April 11, 2011; “PRECIOUS-Gold hits record on euro, silver jumps to 31-year top," Reuters, April 11, 2011; “Gold Advances to Record, Silver Tops $41 Per Ounce on Inflation Concerns,"Bloomberg, April 11, 2011)

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