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Fed Silent on Additional Quantitative Easing

Release Date: 
Wednesday, March 14, 2012

The price of gold was lower after Federal Reserve Chairman Bernanke downplayed the prospects of additional quantitative easing. Gold traded at $1649.10 per ounce at 7:14 a.m. Pacific Time on the New York Spot Market with silver at $33.05 per ounce.

According to Chairman Bernanke, the U.S. economy was "expanding moderately" despite potential downside risks to growth. The Fed’s assessment of the economy was unchanged from its January statement.  The central bank’s policy meetings in April and June will be closely watched for clues about any policy shifts.

According to James Steel, precious metals analyst at HSBC Securities, gold "may be nearing price levels that will encourage emerging-market demand."

Standard Bank analyst Walter de Wet commented, "as far as real interest rates are concerned, we believe that they will remain low for some time to come. The futures market agrees. Even the Fed has indicated that they will keep rates very low for some time." Mr. de Wet added, "this should keep real interest rates in negative territory.  At the same time, economic conditions may indicate that the Fed funds rate is too low.  Such a mismatch has in the past proved quite bullish for gold."

"Gold is just caught in a downdraft again after Bernanke didn't really talk about quantitative easing.  But there is still this deep-seated theme of central bank buying and strong retail demand from emerging Asia, particularly China," said Nick Trevethan, a senior commodity strategist at ANZ in Singapore.

Francisco Blanch, the head of commodity research at Bank of America Merrill Lynch Global Research, said that gold would reach $2,000 this year should the Fed seek to add an additional $800 billion of monetary stimulus.

(Sources: "REFILE-PRECIOUS-Gold slips for third day; equities, dollar weigh," Reuters, March 14, 2012; "PRECIOUS-Dollar, Fed push gold to lowest since mid-Jan," Reuters, March 14, 2012; "Gold Prices Slump 3%," Wall Street Journal, March 14, 2012; "Gold Seen Heading for 12th Annual Advance on Investor Hoarding," Bloomberg, March 14, 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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