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Fed Offers No Indication of QE3 Stimulus

Release Date: 
Wednesday, December 14, 2011

Gold traded lower following statements from the U.S. Federal Reserve that it does not intend to provide additional stimulus at this time. Gold traded at $1612.40 per ounce at 6:36 a.m. Pacific Time on the New York Spot Market with silver trading at $29.35 per ounce.

The Fed said the U.S. economy continues to expand, albeit more slowly. The bank kept interest rates near zero but provided no indication of a third round of quantitative easing, or QE3. "The market yesterday was looking for more indications of a QE3 and when we didn't get it the dollar stayed firmer and commodities are paying the price," said Matt Zeman, head of trading at Kingsview Financial.

The Fed "statement failed to hint at further quantitative easing despite acknowledging slowing global growth," wrote Suki Cooper, an analyst at Barclays Capital in New York, noting that this news, accompanied with the dollar’s climb, pressured gold lower. This week’s drop "reinvigorated physical interest in India and China, however volumes were still relatively light," she added.

The dollar strengthened against the Euro on continued European worries, also affecting gold prices. Bond yields in Italy rose to levels widely viewed as unsustainable. This sent the Euro down sharply, breaking the $1.30 per dollar mark for the first time since January and pushing the dollar to an 11-month high.

Despite the fall in prices, gold prices remain above 15 percent for the year.

(Sources: "Gold Drops to 7-Week Low as Federal Reserve Shuns Stimulus, Dollar Climbs," Bloomberg, December 14, 2011); "Silver Slumps 6.7%; Gold Falls 2.9%," Wall Street Journal, December 14, 2011)

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