Next Dollar Gold Target: $2,400 by Mid-2013
by Adrian Ash - Bullion Vault
October 8th, 2012
Wholesale US dollar gold prices slipped 0.4% from new 11-month highs in London trade Friday morning, dipping beneath $1,790 per ounce as European stock markets crept higher.
Wholesale silver bullion prices eased back below $35.00 per ounce – but also held 1.1% up for the week – as commodities held flat and major-economy government bonds ticked lower.
The Euro currency held above $1.30 despite a sharp drop in Germany's industrial orders data.
Latest US jobs market data were due just ahead of the start of New York trade, with analysts expecting on average a rise of 113,000 last month from August.
"The labor market needs to improve for QE3 to end and, if it does not improve as the Fed wants, other [monetary policy] measures will be introduced," reckons Standard Bank strategist Steven Barrow.
"If the third round of quantitative easing leads to further weakness of the US dollar, [other] central banks may be prompted to switch more cash reserves into gold," says Evy Hambro, co-manager of the UK's giant Blackrock Gold & General mining-stock fund.
The chart of dollar gold prices, says a new report from Hambro's team, "has turned decidedly bullish with the 50-day moving average rising above the 200-day moving average.
"The last time this happened was in February 2009...shortly after the implementation of QE1. Then, gold was $900 and never looked back. Should we witness a similar rally, prices would be taken to $2,400 by midsummer next year."
Bank analysts and trading desks today cited "further support" for gold prices from geopolitical tension over fighting on the Syria-Turkey border, plus the fast-spreading industrial unrest in South Africa – world #6 for gold mining output.
Japan's Toyota Motor Corp. said workers would return today to its Durban plant after it granted the 5.4% pay rise demanded during 4 days of wildcat stoppages.
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Fed’s ‘QE-Infinity’ Will Push Gold to $2,400
By John Melloy, CNBC
Sept. 18, 2012
In one of the most bullish gold calls since the Federal Reserve announced a new round of easing last week, one strategist sees a 36 percent jump in the metal's price (CEC:Commodities Exchange Centre: GCCV1), to $2,400 an ounce, by the end of 2014.
"The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December," wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.
"Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy," Blanch added. "In our view, this is unlikely to happen until the end of 2014."
Last week, the Federal Reserve announced its third round of stimulus since the financial crisis, saying it would buy $40 billion in mortgage-backed securities each month.
The Fed used open-ended language in describing how long so-called QE3 would last, saying in its statement it would continue these purchases - and possibly employ other methods - until the outlook for the labor market improves substantially.
"The combination of open-ended MBS purchases and the possibility of additional Treasury bond purchases starting in December could further lift gold prices by adding over $2 trillion to the Fed's balance sheet over the next two years," explained Blanch in his report entitled "Gold Under QE-Infiniti."
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A Few on FOMC Saw Need for More Bond Buys
Bloomberg
A few members of the Federal Open Market Committee meeting said the central bank may soon have to consider more asset purchases, while others said the economic outlook would have to deteriorate first.
A few members said economic conditions “could warrant the initiation of additional securities purchases before long,” according to minutes of their Jan. 24-25 meeting released today in Washington. “Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain” below 2 percent in the medium run.
The central bank said at its meeting last month that it plans to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment, extending a previous date of mid-2013. Fed Chairman Ben S. Bernanke has since repeated the pledge, which was made before a report this month showing that the jobless rate fell to a three-year low of 8.3 percent in January.
Policy makers said it was unlikely that the Fed would soon begin reducing the size of its balance sheet by selling some of the Treasury and mortgage bonds amassed in the course of two rounds of large-scale asset purchases.
“Most participants saw sales of agency securities starting no earlier than 2015,” said the minutes, which included, for the first time, “qualitative information regarding participants’ expectations for the Federal Reserve’s balance sheet.”
Factory Production
Economic data since the Fed meeting have pointed to strength in the world’s largest economy. A Fed report earlier today showed output at factories increased 0.7 percent after a revised 1.5 percent gain in December, reflecting gains in demand for automobiles and business equipment that may keep manufacturing at the forefront of the expansion.
“The bias at the time of the meeting was clearly for additional asset purchases,” said Dan Greenhaus, chief global strategist for BTIG LLC in New York. “The improvement in various indicators since the time of the last meeting probably means that for the average FOMC member the appetite for additional purchases is lower.”
A Feb. 3 report from the Labor Department showed employers added 243,000 jobs to payrolls last month, exceeding the most optimistic forecast in a Bloomberg Survey of 89 economists.
‘Exceptionally Low’
The minutes said “almost all members agreed to indicate” that economic conditions would warrant an “exceptionally low” federal funds rate level “at least through late 2014.” The minutes said “several members” anticipated that unemployment would still be higher than their estimates of its longer-term normal rate, and inflation would be at or below the committee’s longer-run objective of 2 percent, in late 2014.
U.S. stocks extended declines amid concern Greece was moving closer to default. The Standard & Poor’s 500 Index lost 0.6 percent to 1,342.39 at 3:09 p.m. in New York. The index is up more than 6 percent this year on evidence of a strengthening economy. The yield on the 10-year Treasury note fell was little changed at 1.93 percent.
Fed policy makers said forward guidance on the federal funds rate would help provide more accommodative financial conditions. Still, “some members” said the rate outlook “would be subject to revision” in response to significant changes in the economic outlook.
Interest-Rate Path
For the first last month, policy makers published their own projections for the path of the Fed’s target interest rate. The central bank also announced a goal to hold inflation to 2 percent, along with a pledge to return the economy to maximum employment, which it currently sees as a jobless rate between 5.2 percent and 6 percent.
All FOMC members voted to adopt the Fed’s statement of its goals except Governor Daniel Tarullo, who abstained because he “questioned the usefulness of the statement in promoting better communication of the committee’s policy strategy.”
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Gold Rises 2%, Back Above $1,800
The Globe and Mail
Gold rose 2 per cent Tuesday, boosted by weak U.S. consumer confidence data, euro zone debt fears and a call by the Chicago Federal Reserve’s president for further action to help the U.S. economy.
Gold accelerated gains early after Chicago Fed President Charles Evans told CNBC television he backs “some of the most aggressive policy actions” being considered by the Fed, adding the labor market looks to be in a recession.
Other perceived safe havens, such as Treasuries, also rose after data showed U.S. consumer confidence crumbled in August to its lowest in more than two years.
A weaker-than-expected report on euro zone economic sentiment and renewed debt fears on Greece and Europe also boosted bullion buying.
“The weak U.S. and European confidence data brought economic worries back to the forefront. There was strong European physical gold buying due to significant concerns about the growth prospect,” said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
Bullion has gained as much as 8 per cent in the last three sessions, supported after Fed Chairman Ben Bernanke last Friday raised hopes for a new market stimulus program.
Spot gold was up 2.7 per cent at $1,835.19 an ounce by 2:38 p.m. (ET). Gold fell more than 1 per cent last week, when investors stripped more than $200 off the price after it hit a record $1,911.76 on Aug. 23.
U.S. gold futures for December delivery (GC-FT1,838.2046.602.60%) settled up $38.20 at $1,829.80 (U.S.) an ounce. Trading volume was modest but below the record levels logged last week.
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