"Scope for Gold at $2400" as US Monetary Policy "Designed
to Weaken the Dollar"
from Ben
Traynor, from Ben Traynor
THE SPOT gold price climbed
back above $1715 an ounce Wednesday morning, around ten Dollars up from last
week's close, as stocks, commodities and the Euro also edged higher and US
Treasuries dipped, ahead of today's Federal Reserve policy announcement.
Silver meantime edged above $33.20 an ounce this morning, a slight gain
on where it started the week.
Several analysts have predicted the Fed will today announce open-ended
Treasury bond purchases worth $45 billion a month. In September the Fed
announced it will buy $40 billion of mortgage-backed securities a month, while
its maturity extension program Operation Twist, through which it sells
shorter-dated bonds to buy longer-dated ones, ends this month.
"We have a six-month [gold price] target of $2000 an ounce, but see
scope as well for prices to rise to $2400 an ounce by the end of 2014,"
says the 2013 outlook from Bank of America Merrill Lynch metals strategists
this morning, in contrast with the Goldman Sachs
gold forecast for 2014 made last week.
"These targets reflect 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 in December 2012."
"Quite clearly the US wants a lower Dollar and its monetary policy
is certainly geared to deliver it," says currency strategist Steve Barrow
at Standard Bank in a note this morning.
"If policy is geared to weaken the Dollar even more, through
further monetary easing today, it won't stop any short-term safe haven demand
for the Dollar that might arise out of fiscal cliff, but it could impair the
ability of the Dollar to continue any such strength into the longer term."
President Obama and House of Representatives speaker John Boehner
exchanged new proposals on how to reduce the US deficit yesterday, press
reports says, as part of ongoing negotiations aimed at avoiding the so-called
fiscal cliff of tax rises and spending cuts currently due at the end of the
month unless Congress passes legislation to prevent them.
Obama has reduced his request for additional tax revenue over the next
decade from $1.6 trillion to $1.4 trillion, Associated Press reports, but has
not changed his call for top income tax rates to be raised.
"I'm pretty confident that Republicans would not hold middle-class
taxes hostage to trying to protect tax cuts for high-income individuals,"
Obama told ABC News Tuesday.
The two sides are yet to reach an agreement.
In Toronto meantime Bank of Canada governor Mark Carney, who takes over
at the Bank of England next year, suggested Tuesday that central banks might
consider adopting nominal gross domestic product targets as an alternative to
inflation targeting.
Under NGDP targeting, a central bank would aim to promote economic
growth by targeting a given level of economic output in a given year.
"Adopting a nominal GDP-level target could in many respects be more
powerful than employing thresholds under flexible inflation targeting,"
Carney said.
"This is because doing so would add 'history dependence' to
monetary policy. Under NGDP targeting, bygones are not bygones and the central
bank is compelled to make up for past misses on the path of nominal GDP."
Greece concluded its debt buyback program Tuesday, with unnamed official
sources reporting it has received bids to sell bonds with €31.8 billion face
value – above the €30 billion needed to secure Greece's next tranche of bailout
funding.
The average price paid for the bonds was however slightly above that
targeted, meaning Greece's debt to GDP ratio was reduced by 9.5 percentage
points rather than the 11 targeted, according to the source.
The Euro extended yesterday's gains against the Dollar Wednesday,
climbing back above $1.30.
China, the world's biggest gold producer and the second-biggest source
of private demand last year, produced 34.6 tonnes of gold in October, China's
Ministry of Industry and Technology said today.
October's production brings the total for the first 10 months of 2012 to
322.8 tonnes, an 11% increase on the same period last year.
Over in India, which imports most of its gold and is traditionally the
world's number one source of demand, efforts should be made to reduce imports
of gold and so lower the current account deficit that has risen to record
levels, the All India Gems & Jewellery Trade Federation said Wednesday.
Lending 10% of the gold held with temples and householders to jewelers
would provide three years' worth of supply, according to federation chairman
Bachhraj Bamalwa.
"The only way India can reduce its dependence on imports is to tap
the gold lying with individuals and temples," agrees Kishore Narne, head
of commodity and currency at Mumbai broker Motilal Oswal.
"By doing this, the country can reduce influx of gold at these high
prices. Appetite for gold is never going to diminish."
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.
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