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Fed Holds Off on QE3 and Extends Twist Program

Release Date: 
Thursday, June 21, 2012

Gold prices were lower on Thursday following disappopinting news following the Federal Reserve’s two-day meeting. The central bank said it would extend its "Operation Twist" program to flatten the yield curve and bring down long term interest rates. However, analysts and investors were hoping for a more aggressive monetary easing program, or QE3 to bolster the sagging economy. Gold was $20.60 lower at 7:19 a.m. Pacific Time on the New York Spot Market, trading at $1,587.20 per ounce. Spot silver was $0.55 lower at the same time, trading at $27.67 per ounce. (Click here for the most current spot prices.)

"Currently we're seeing a bit of follow-through from disappointed investors, but believe we should be finding support pretty soon," Saxo Bank vice president Ole Hansen said. "Bernanke left the door open and extended the expected period of low interest, which is good news for gold. Overall I think the market is not ready to let go of gold, as it still looks like one of the better bets should the economic outlook continue to deteriorate."

"We are wary of the potential impact of the looming 'fiscal cliff' in December, when the latest roll-over Bush-era tax credits are due to end could see consumer purchasing power fall substantially," investment bank Fairfax said in a note. "We expect the Fed to take further action before this event to avert yet another potential crisis." The bank added, "We see gold as attractively priced at these levels, and we see the potential for further QE in the United States, China and Europe as leading gold higher this year."

"The failure of the FOMC to announce another round of quantitative easing was a mild disappointment for the bullion markets," said James Steel, analyst at HSBC Securities. "Following the announcement, the gold market may shift the focus back to the euro zone, we believe."

Nick Barisheff, CEO of Bullion Management Group, says Europe's economic woes will drive even more investors into gold. "I think we have a chance to surpass the previous high this year or early next year, so that would put it above $1,900. I don’t see things changing in the long term, that’s why my book coming out in the fall is entitled ‘$10,000 an Ounce Gold.’ Because there’s really no other solution but to print more money, create more debt, and all of that will cause a higher gold price."

(Sources: "PRECIOUS-Gold prices fall more than 1 pct as Fed disappoints," Reuters, June 21, 2012; "Gold slides further after data, Fed," MarketWatch, June 21, 2012; "Sell Europe, Buy Gold Bullion," The Street, June 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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