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U of T Advisor Prefers Physical Delivery of Gold

Release Date: 
Tuesday, March 13, 2012

The price of gold moved lower as the euro fell ahead of Tuesday's Federal Reserve meeting on the interest rate. Gold traded at $1688.60 per ounce at 7:08 a.m. Pacific Time on the New York Spot Market with silver at $33.51 per ounce.

Expectations are low for further quantitative easing (QE), but investors are closely watching the Fed's statements for any change in its monetary policy. Accommodative monetary policy programs such as quantitative easing are often seen as benefiting gold prices which have more than doubled since the Fed announced its first round of QE in late 2008.

"The market had maybe overly anticipated QE3 into the gold price, it had factored in too much and it maybe what we saw last week was something of that being extracted back out of the price — diminished expectations of QE3," said James Steel, an analyst at HSBC. "If there are no announced changes to the Fed program, then the Fed statement is unlikely to have any obvious implications for the U.S. dollar," he noted. "This would also mean that the FOMC meeting is likely to have little effect on gold," he added.

Hedge fund manager Kyle Bass of Heyman Capital sees a general pattern of monetary expansion that he believes is positive for gold. "The pattern is set that we'll continue to monetize fiscal deficits by expanding central bank balance sheets. You can call it what you want to call it. You can call it LTRO. You can call it quantitative easing. You can call it any acronym that the powers that be want to call it. I call it money creation out of thin air and therefore gold has a lot further to go."

As a board member and advisor to the University of Texas, Bass advised the university to take physical delivery of gold to reduce long term investment costs, citing it as a fiduciary obligation in managing gold assets.

(Sources: "Platinum tops gold briefly ahead of Fed," Reuters, March 13, 2012; "PRECIOUS-Gold gains ahead of Fed meeting, euro helps," Reuters, March 13, 2012; "Gold erases gains ahead of FOMC," MarketWatch, March 13, 2012; "Kyle Bass on Gold," CNBC, March 13, 2012; "Gold Falls as Momentum Weakens, Eyes on FOMC," CNBC, March 13, 2012;)

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