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Metals Analysts Expect Continued Easy Fed Policy

Release Date: 
Tuesday, April 26, 2011

Precious metal prices retreated from their record-setting highs on Tuesday with profit taking ahead of a key U.S. Federal Open Market Committee Meeting that will determine U.S. monetary policy. Analysts at Credit Suisse and Quantitative Commodity Research noted their own and the market's expectations for continued accommodative U.S. monetary policy, even amid the pre-meeting uncertainty. At 7:37 a.m. Pacific Time on the New York Spot Market, the price of gold was $1500.60 per ounce while silver was $45.46 per ounce.

The Federal Open Market Committee meeting starts late on Tuesday and concludes on Wednesday. The U.S. Federal Reserve Bank is widely expected to confirm it will stick to plans to complete a $600 billion bond-buying program. A post-meeting news conference by Fed Chairman Ben Bernanke will be the first regularly scheduled briefing by a Fed chief in the bank's 97-year history.

The current treasury buying program known as QE2 is scheduled to end in June, and markets are anxious to know if the supportive policy will extend to a QE3 program. "The rally has been strong, it's not surprising to see profit taking ahead of the FOMC meeting," said Peter Fertig, a consultant at Quantitative Commodity Research. "Markets expect it will be a dovish statement from the U.S. Fed, but there are worries about them ending (Quantitative Easing) ahead of time."

"The market will be watching out for any signs of what the Fed is going to do at the end of the second round of quantitative easing," said Yingxi Yu, an analyst with Barclays Capital." If Bernanke remains dovish, as he has been, it will provide indication that monetary policy will not be tightened significantly in the second half, which is pretty favorable for precious metals."

"The ... meeting is a possible event risk but we believe post-meeting comments will confirm that U.S. short-term rates will remain low for the time being which would be positive for precious metals," Credit Suisse Private Banking said in a research note.

(Sources: "Gold, Silver Retreat from Records Ahead of FOMC," CNBC, April 26, 2011; "PRECIOUS-Silver trims losses, snaps rally ahead of option expiry," Reuters, April 26, 2011; "Gold dips; silver partly recovers from Asia swoon," MarketWatch, April 26, 2011)

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