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UBS Says Gold May Top Record in 2013 on Quantitative Easing

Release Date: 
Wednesday, December 12, 2012

The price of gold moved higher on expectations of further liquidity from the Fed after its meeting concludes today. Gold was $2.50 lower at 7:02 a.m. Pacific Time on the New York Spot Market, trading at $1,711.10 per ounce. Spot silver was $0.30 lower at $33.07 per ounce. (Click here for the most current spot prices.)

Operation Twist, the Fed program to sell short term Treasuries to buy long-dated Treasury bonds, is due to expire at the end of the year. Analysts expect further Fed support for the economy through some form of additional liquidity.  Commerzbank said the Fed is likely to retire Operation Twist, and expand the size of QE3, the Fed’s mortgage-backed debt purchasing program. "There is much to suggest climbing gold prices, in other words," Commerzbank said in a note.

“The end result is Fed balance sheet expansion,” said Jeffrey Wright, managing director at Global Hunter Securities, which also means “‘printing more money’ — a definite booster for gold via a weaker U.S. dollar…We believe in the short term the move is partially priced into gold markets and do not anticipate a quick run up but rather steady progression with higher gold above $1,850 in first half of 2013.”

“Everyone is expecting the Fed to print more money and keep buying securities,” said Michael Smith, president of T&K Futures & Options. “The best hedge against a decline in the value of the dollar, in most people’s minds, is gold and silver.”

If the Fed announces more asset purchases to boost economic growth, "then we will have a rally on our hands before the year-end," said Gnanasekhar Thaigarajan, a director with Commtrendz Research. According to HSBC analyst James Steel, further weakness in the U.S. dollar should continue to support gold prices.

UBS said that gold will top its record high of $1,923.70 sometime in 2013. According to analyst Edel Tully, "For us, the most important precondition for gold gains is loose monetary policy…We don't think gold has priced in a sizeable expansion in the Fed's balance sheet beyond current levels, but we do think that quantitative easing will again loom large in the first half of 2013. This overrides many other potential gold drivers."

(Sources: “PRECIOUS-Gold prices rise ahead of Fed announcement,” Reuters, December 12, 2012; “Gold Futures Rise to One-Week High on Fed Stimulus Bets,” Bloomberg, December 12, 2012; “Gold resumes climb on hopes for Fed easing,” Marketwatch, December 12, 2012; “Gold Prices Climb on Easy Money Hopes Ahead of FOMC,” Wall Street Journal, December 12, 2012; “Gold Rangebound in Asia as Market Awaits Outcome of Fed Meeting,” Wall Street Journal, December 12, 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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