Tuesday London Gold Market Report

"Massive, Open-Ended Stimulus" Expected from Fed, More QE "Could See Gold Rally" 

from Ben Traynor, BullionVault

THE WHOLESALE gold price rose to $1712 an ounce Tuesday morning in London, a few Dollars above where they started the week, while stocks edged higher and US Treasury bonds fell ahead of tomorrow's Federal Reserve policy decision.

All-but-one of 49 economists polled by news agency Bloomberg predict the Fed will buy US Treasury bonds in addition to the $40 billion per month of mortgage-backed securities purchases announced in September.

"It's going to be massive and open-ended in size," says Deutsche Bank's chief US economist Joseph LaVorgna.

"[Fed policymakers] view this stimulus as what's needed to sustain the economy," agrees John Silvia, chief economist at Wells Fargo.

"If the Fed comes out with $45 billion of bond purchases [as some analysts have suggested], it could be the spark we need for another gold rally," says Matthew Turner, precious metals strategist at Mitsubishi.

"Previous episodes of quantitative easing have seen a gold rally. The policy should increase inflationary expectations, and gold acts as a hedge against inflation."

"People have realized that what the Fed has been doing is damaging to price stability," adds Dominic Schnider at UBS Wealth Management, citing strong gold coin sales from the US Mint last month.

The Federal Open Market Committee may on balance become more inclined towards accommodative monetary policy in 2013, Reuters reports, when Chicago Fed president Charles Evans and Boston Fed chief Eric Rosengren become voting members.

Elsewhere in Washington, "there is no deal of anything like it" on the so-called fiscal cliff, according to a Republican leadership aide quoted by Reuters, following further negotiations between the White House and the office of House of Representatives speaker John Boehner Monday.

Silver meantime hovered just above $33 an ounce Tuesday morning in London, in line with where it started the week, as other industrial commodities edged higher.

Over in Italy, prime minister Mario Monti has followed policies "that were too German-centric", his predecessor Silvio Berlusconi said Tuesday.

"All the economic statistics have worsened," Berlusconi added in an interview with Canale 5, a television station he owns.

Berlusconi has said he will run in February's election, while Monti, an unelected technocrat, has not yet announced his decision.

In Hong Kong meantime, premiums paid to above the spot price to buy gold rose to a five-month high Tuesday, dealers said.

"Chinese buying has been picking up," says Dick Poon, Hong Kong general manager at precious metals refiner Heraeus.

"The banks want to keep some inventory and prepare for the holiday demand around the [Chinese] Lunar New Year [in February]."

Since refineries tend to close over Christmas and New year in the West "there probably won't be much supply around until mid-January," adds Ronald Leung at Lee Cheong Gold Dealers.

China's new loans and M2 money supply were lower than most analysts expected last month, according to data published Tuesday.

"M2 has mirrored economic activity," says Xianfang Ren, Beijing-based senior analyst at IHS Global Insight.

"We've felt all along that China wouldn't have a strong recovery, that there would be a lot of volatility along the way."

South Africa's gold production in October was half what it was a year earlier after a series of strikes and protests by mineworkers, according to data from Statistics South Africa.

Turkey meantime  would have fallen into recession during the third quarter were it not for its gold exports, most of which go to Iran or the United Arab Emirates, according to Capital Economics chief emerging markets economist Neil Shearing.

Gold value calculator   |   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. Ben writes and presents BullionVault's weekly gold market summary on YouTube and can be found on Google+

(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.