Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

QE3 Triggers Higher Inflation Risks Gold Seen Hitting $1850-$1900

Commodities / Gold and Silver 2012 Sep 14, 2012 - 10:34 AM GMT

By: Ben_Traynor


Best Financial Markets Analysis ArticleWHOLESALE MARKET gold bullion prices held above $1770 an ounce for most of Friday morning's London trading, near their six-month highs hit after the US Federal Reserve announced a third round of quantitative easing (QE3) yesterday, leading to warnings that the risk of inflation has risen.

"After the move [gold bullion] had, not just yesterday, but over the last two or three weeks I think it would be natural to look for a period of consolidation," says Credit Suisse analyst Tom Kendall in London.

"But certainly going into the back end of this year, I would be looking for gold to be getting towards at least the $1850 level."

Silver bullion traded around $34.70 an ounce this morning, also close to new six-month highs, as stocks, commodities and the Euro all moved higher after Fed policymakers voted 11-1 in favor of new asset purchases.

"Silver is poised to test the next resistance level at $35.4," one trader in Shanghai tells newswire Reuters. 

"The recent rally, which has lifted silver by about 25% over the past month, is suppressing short-term physical demand"

The Fed announced Thursday that it will purchase $40 billion of mortgage-backed securities per month, and will continue such purchases until the outlook for the labor market improves "substantially".

In addition, the Fed will continue its policy aimed at lowering longer-term US Treasury bond yields, known as Operation Twist, due to run until December. The Fed will also continue its policy of reinvesting principal payments on currently-held mortgage-backed securities back into this asset class.

In its statement, the Federal Open Market Committee said that the combined effect of its actions would amount to around $85 billion of asset purchases per month until the end of 2012.

"This is a Main Street policy, because what we're about here is trying to get jobs going," Fed chairman Ben Bernanke told a press conference following the announcement.

"We're trying to create more employment. We're trying to meet our maximum employment mandate, so that's the objective."

"[Bernanke will] fight and fight until he sees a real improvement in the economy," says Ethan Harris, New York-based co-head of global economics at Bank of America Merrill Lynch.

"He's not going to let his critics stop him. He believes quantitative easing can help the economy and the Fed can avoid inflation, so he'll just keep at it until there's a real turn in the economy."

The latest nonfarm payroll data suggest the US economy added 96,000 jobs in August, below the 150,000-200,000 Bernanke estimated in April is needed to meet Fed unemployment projections.

The US unemployment rate meantime has remained above 8% since February 2009.

"There is not a specific number we have in mind [for unemployment]," Bernanke told reporters.

"But what we've seen in the last six months isn't it."

In addition to announcing asset purchases, Fed policymakers extended their guidance for near-zero interest rates to at least mid-2015, beyond the previous guidance of late 2014.
US Treasury bond prices fell overnight for bonds with maturities of three years or more, pushing longer-dated yields higher.

"[The Fed's decision to leave] purchases open-ended and extending their guidance means a steeper yield curve, as there is more inflation risk," says Societe Generale trader Sean Murphy in New York.

"The need to come out with the operation at all is alerting everyone that there is a long road in this recovery and there are still many things that need to be addressed."

"Controlling the fire of inflation once it is roaring is a difficult task," warns Congressman Kevin Brady, a Republican from Texas and vice chair of the Joint Economic Committee.

"The Fed is overly confident about its ability to pick the right time to withdraw all this stimulus."
Economist Paul Krugman however says that it's "good to see the Fed moving, finally".

Writing in his New York Times column, Krugman adds that "the Fed seems to be trying to 'credibly promise to be irresponsible'" as a way of raising inflation expectations, something Krugman advocated the Bank of Japan do back in the 1990s.

"As [Bernanke] himself said," adds Neal Soss, chief economist at Credit Suisse and a former New York Fed economist, the Fed has built up a lot of capital with respect to inflation credibility...the point of having capital is, from time to time, to spend it."

"Should the Fed expand its balance sheet by a further $1.3 trillion," says Standard Bank strategist Walter de Wet, "it would lift our fair value estimate for gold to around $1900. As a result, even from current levels of gold at $1770, we still see substantial upside for the metal."

Here in Europe meantime, Spain would be "daft" to ask for a bailout on top of the €100 billion it has already agreed to fund banking sector restructuring, according to German finance minister Wolfgang Schaeuble.

"I'm not in the camp that says 'take the money,'" Schaeuble said in an interview Thursday.

"I'm one of those who says we should do everything possible to convince the markets that...speculation against Spain is without any basis in reality."

"Our desire and intention," said Spain's budget minister Cristobal Montoro yesterday, "is to return again to being a reliable partner in Europe that doesn't ask for anything."

On the currency markets, the Euro rallied above $1.31 against the Dollar for the first time since early May this morning. Despite this strengthening, Euro gold bullion prices set a record high at Friday morning's London Fix above €1359 per ounce, before drifting lower towards lunchtime.

By Ben Traynor

Gold price chart, no delay   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in