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Fed Fails to Signal Imminent Monetary Easing

Release Date: 
Wednesday, April 4, 2012

Gold prices were lower today, trading at $1627.10 per ounce at 6:49 a.m. Pacific Time on the New York Spot Market with silver at $31.73 per ounce. According to minutes from the March Fed meeting, the central bank does not anticipate a third round of quantitative easing unless the economy's growth loses momentum. However, several analysts discussed their expectations for further quantitative easing later in 2012 that may help to support gold, along with inflation and negative real interest rates.

"Stocks and commodities were lower along with gold on diminished expectations of quantitative easing. What we see today is a rather broad-based selloff in financial markets," said Carsten Fritsch, an analyst at Commerzbank.

Standard Bank analyst Walter de Wet said that the price of gold is likely to rise higher longer-term and would probably rise above $1,900 towards the end of the year. "We don't see real interest rates positive this year ... We still think globally that monetary supply will continue to grow - maybe not to the same rate as it did but certainly it's going to grow and these things are positive for gold.

Tom Essaye, President at Kinsale Trading, said that the gold price currently looked "pretty compelling" as an entry point. "I think we're actually going to see rising inflation here in the U.S. and that's going to cause real interest rates to turn more negative, which is bullish for gold. So I would be a buyer of gold at these levels."

"The Fed has a high bar for additional easing and investors should not really expect that the news flow will be conducive to the Fed putting in additional easing by the end of April or even June," said Wells Fargo Advantage Funds strategist Brian Jacobsen.

Ethan Harris, Bank of America Merrill Lynch economist, believes that a quantitative easing program lies ahead in 2012. "Our view since late last year has been it's coming, but not until the fall." He added, "frankly, I don't know why we are talking about it now. Bernanke has been very consistent in waiting to see clear signs of an economic stall and then using QE to correct the course." He added, "people are starting to question if the economy is really off to the races and the broad based risk aversion trade will be back in the fall."

(Source: "Fed Kills Gold Trade, but Doesn't Bury It,", April 4, 2012; "PRECIOUS-Gold slips as Fed minutes dash stimulus hopes," Reuters, April 4, 2012; "Gold, silver slump as Fed dents risk appetite," MarketWatch, April 4, 2012; "Further Fed Easing to Boost Gold: Societe Generale," CNBC, April 3, 2012)

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