The Fed Did Not Disappoint the Gold Market

 

Austin Kiddle

 

The U.S. gold Comex futures jumped 1.81 percent this week after surging 3.13 percent last week and briefly exceeded the level of $1,770 on Thursday. Year-to-date, the gold futures rose 12.94 percent, compared to S&P 500 index, 17.94 percent and the Euro Stoxx 50 index, 14.72 percent. This week the S&P 500 index rose 0.77 percent while the Euro Stoxx 50 index rose slightly by 0.59 percent. The Dollar Index fell 1.23 percent to 79.262 after falling 1.18 percent last week.

The market expectations of another quantitative easing programme from the Fed have pushed down the Dollar Index which peaked at 84 on 24 July. The German's court decision to ratify the European Stability Mechanism of Euro 500 billion also boosted gold prices. The pledge by the Chinese government to raise subway and railway projects spending by RMB 800 billion last week and Premier Wen's confidence in achieving 2012's growth target benefit both risky and gold markets.

On 13 September, the U.S. Fed did not disappoint the market by launching the widely-anticipated QE3 and linking the results of the QE3 to improvement of the labour market. The Fed will make an open-ended purchase of $40 billion of mortgage-backed securities each month until the Fed sees an ongoing and sustained improvement in the job market. In August, the U.S. economy only added 96,000 jobs. The Fed also pledged to hold interest rates at zero percent until at least mid-2015. Gold futures surged 2.22 percent while the CRB Commodities Index reached a five-month high as markets anticipate rising inflation after QE3.

According to Bloomberg, analysts forecast median gold price at $1,750 in 2013. The range goes from $1,560 to $2,050 for 2013. A Citibank analyst compared the gold price breakout in the week of 3 September, 2007 to that of the week of 27 August, 2012 and predicted gold price could reach $2,450 to $2,500 by Q1 2013. The Indian gold bar price per 10 grams surged to an all-time high at Rupee 32,700 on Wednesday on the back of the bullish external markets.

The market will likely focus on the Eurogroup meeting and Spanish aids discussions on 14 and 15 of September, the U.S. August housing starts on 19 September, the China's September HSBC flash PMI and the EU 17 September flash manufacturing index as well as the U.S. initial jobless claims on 20 September.

 

Austin Kiddle
Sharps Pixley, London
www.SharpsPixley.com

 

 

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