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Growth Fears Fuel Speculation About Easing

Release Date: 
Monday, August 29, 2011

Concerns about the lagging economy led analysts to comment on future monetary policy in the wake of Fed Chair Ben Bernanke’s speech on Friday. His remarks left open the possibility of further monetary stimulus at the Fed’s September meeting, according to analysts at ANZ.

"Bernanke gave markets no hints that another liquidity injection was imminent," Ritesh Gandhi, an analyst at Mumbai-based investment bank Anand Rathi Group, said in a report. Buyers were "returning to the gold market in search of a refuge," Gandhi said. A second day has been added to the Federal Open Market Committee meeting next month for "a fuller discussion" of the economy and the Fed’s possible response, Bernanke said Aug. 26.

"An extra day of deliberations scheduled for the September FOMC meeting kept hope of another QE3 on the table," said ANZ Bank in a note. Speculation that more easing may yet be unveiled next month in the face of an uncertain growth outlook weighed on the dollar and helped lift European stocks.

Concerns about the sovereign-debt problems were brought back into focus on Saturday when the International Monetary Fund’s managing director, Christine Lagarde, said in Jackson Hole, Wyo., that the global economic recovery was "fragile" and warned of a "dangerous new phase."

"We believe gold is an insurance policy against a rising probability of worsening global systemic risks and the recent price decline provides a buying opportunity," Morgan Stanley analysts including Hussein Allidina wrote in a note.

"Gold recovered strongly after the wild swings during the week, and after a lot of weak longs were flushed out and with speculative long positions still being reduced, it has now got room to the upside," said Saxo Bank senior manager Ole Hansen.

(Sources:  "PRECIOUS-Gold softens but easing talk lifts prices from lows," Reuters, August 29, 2011; "Gold Advances on Wealth-Protection Demand After Bernanke Offers No Boost," Bloomberg, August 29, 2011; "Spot gold drifts lower, eyes $1,800/oz," MarketWatch, August 29, 2011)

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