Analysts concur that gold will hit at least $1,800 by November and silver and PGMs will be among the biggest winners of the Federal Reserve's new third quantitative easing program.
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Posted: Friday , 14 Sep 2012
RENO (MINEWEB) - The Federal Reserve's announcement Thursday that it would purchase buy an additional $40 billion per month in mortgage-backed securities, increasing its holdings of longer-term securities by about $85 million each month through the end of the year, as well as keeping interest rates "exceptionally low" until 2015, sent investors running after gold and silver.
Gold futures rose to $1,773.10 per ounce, while silver jumped 6% to $34.78 per ounce.
"Expectations of a stronger U.S. economy resulting from this policy should help industrial demand for industrial base and precious metals, as well as, gold," TD Securities' Bart Melek advised. "The tighter supply/demand conditions should move prices higher, possibly above their respective cost structures."
The uptick in gold and silver also boosted copper to $3.74 per pound, as December palladium rose $9.70 to $689 per ounce. October platinum increased $29.90 to $1,679.50 per ounce. The world's largest bullion ETF, SPDR Gold Shares hit its highest price since February, closing at $171.31 per share while the iShares Silver Trust closed at $33.61 per share, up 4.35%.
TD Securities said it thinks that gold, silver and PGMs will be among the biggest winners from the Fed's commitment to growth. "We see gold jumping to well over $1,800 by year end. The Yellow metal hitting daily highs of around $2,000 is now entering the realm of possibility over the next nine months or so."
"Silver could hit the $38-40 territory, platinum $1,900, while a daily high of some $950 for palladium is also a real possibility by the second half of 2013," said TD Securities.
Analysts interviewed by various news organizations also advised that the Fed's move was supportive for the gold market. Sterling Smith, Citibank futures specialist, told Kitco $1,800/oz gold could occur by early November.
"Gold, in a way, is a pure currency, and that makes it the most interesting and the most favored when we see this type of situation" with quantitative easing, Smith told Bloomberg.
An unidentified U.S. trader told fastmarkets.com. "Gold is the obvious and biggest beneficiary here, which is to be expected after this kind of announcement. It now looks like $1,800 is a near-certainty and the all-time high-water mark ($1,919) could be challenged right around the U.S. presidential election in November."
"Perhaps the most important feature of this FOMC announcement is its open-ended nature," said TD Securities' Melek. "One important bit of communication that they headlines have not talked about, but is very important to gold and other commodities, is the pronouncement that ‘the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens' as it implies willingness to tolerate inflation risks."
"Gold is a big winner, as the opportunity cost of holding zero yielding assets decreases with this over the longer term," Melek advised.
iPad Version: Picture - U.S. Federal Reserve Chairman Ben Bernanke : REUTERS/Jason Reed
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