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Bulls Cautious, Gold Down Slightly
by Michael Locklear
September 18, 2012 – As investors pause following Friday’s monetary easing announcement by the Federal Reserve and a record-breaking stock rally, Gold moved slightly down yesterday and today. The gold market is looking to where it might go next. Nonetheless bulls still remain confident that the price of gold will just continue to climb into the near future. With the stock market rising along with a stronger dollar, gold prices experienced a momentary caution.
An HSBC analyst predicts that the new round of monetary easing may result in higher interest rates as a consequence the Federal Reserve’s actions will be diluted in its effectiveness. “Since the gold rally is heavily predicted on QE3, this could shift the market psychology to one of cautious consolidation after this spate of strong gains. We remain bullish on the market [it] needs a ‘breather’ before moving higher later in the year,” according to the analyst.
Spot gold price today is a $1770.50 per ounce. This represents hesitancy as market investors consider the possibility that the new Federal Reserve policy may in fact be effective and in the long-run result in lower gains in the market. This is bolstered by reported disagreements among some of the leading Fed policymakers over whether this third round of quantitative easy will be effective. Charles Evans, president of the Chicago Fed said that Bernanke’s announcement on Friday of the Fed’s plan to buy $40 billion worth of mortgage-backed securities each month for an indefinite period of time, at least until the labor situation in United States has improved, will result in “important added stimulus” to bolster the economy and create new jobs. From the opposite side of the argument comes monetary easing dissenter Richard Fisher, President of the Dallas Fed, who has aggressively opposed any further monetary stimulus, said he would have voted against the policy in last week’s meeting if he still had the power to vote on the FOMC this year.
The decision of the FOMC may still continue to bolster gold prices as it continues to maintain near zero long-term interest rates, as the decision continues to fuel speculation by investors that inflation is an inevitable result of these actions. VTB analyst, Andrey Kryuchenkov said, “Judging by the broader commodity market, the QE 3 euphoria is over for now, yet bullion is still bullish in the long run, given the debasing of major fiat currencies , liquidity boosts, etc. Inflation concerns will resurface.”
Other analysts said that the longer-term news will only continue to fuel gold prices. Bayram Dincer, an analyst at LGT Capital Management, said “The policy says that, even if Reagan economic sustainability, central banks will keep interest rates low and monetary policy lose, the forward-looking guidance of central banks is very favorable for real assets, because in that kind of scenario you have inflation- hedge and diversification benefits provided mainly by gold.” So the bears remain bearish and the bulls remain bullish as we move forward inching our way toward some new decisive move in the gold market. There is however a new prediction from inside Merrill Lynch Bank of America that gold prices will continue to climb and reach over $2400 per ounce by the end of 2014. Still others believe this estimate is conservative considering all the factors that are impacting gold price around the world.
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