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Experts Say Massive Fed Easing and Inflation May Push Gold Higher

Release Date: 
Tuesday, December 11, 2012

The price of gold was slightly lower as markets await the result of the Federal Reserve meeting that began today. Gold was $2.50 lower at 7:02 a.m. Pacific Time on the New York Spot Market, trading at $1,711.10 per ounce. Spot silver was $0.30 lower at $33.07 per ounce. (Click here for the most current spot prices.)

Economists and analysts say the Fed may announce monthly bond purchases of up to $45 billion after its meeting. "It's going to be massive and open-ended in size," said Deutsche Bank chief US economist Joseph LaVorgna. "[Fed policymakers] view this stimulus as what's needed to sustain the economy," said John Silvia, chief economist at Wells Fargo.

"If the Fed comes out with $45 billion of bond purchases, it could be the spark we need for another gold rally," said Mitsubishi analyst Matthew Turner. "Previous episodes of quantitative easing (QE) have seen a gold rally. The policy should increase inflationary expectations, and gold acts as a hedge against inflation."

Brien Lundin, editor of Gold Newsletter, said the announcement of new bond purchases by the central bank would result in a big increase in the U.S. money supply. “Such an event would be exceeding bullish for gold, which has always protected individuals from such mismanagement of currencies by governments,” he said.

"If the Fed continues to be accommodative, I think we will see gold moving higher from here, and silver likewise," said Matt Zeman, head of trading at Kingsview Financial.

Bart Melek, senior commodity strategist with TD Securities, said "if those excess reserves will start leaking from the banks into loans, there will be a contingency out there who may start worrying about future inflation and that has traditionally been a catalyst for gold prices to move higher." He added that an increase in consumer and investor confidence could be a catalyst for inflation.

(Sources: “PRECIOUS-Gold prices hold near $1,710/oz ahead of Fed meeting,” Reuters, December 11, 2012; “Gold steady as market awaits Fed,” Commodity Online, December 11, 2012; “Gold futures log first loss in four sessions,” Marketwatch, December 11, 2012; “Gold, Silver Futures Climb on Fed Easing Hopes, Euro-Zone Worries,” Wall Street Journal, December 10, 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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