Gold biggest beneficiary of Fed's QE3, analysts recommend a buy
TOKYO: Post the announcement of a third round of quamtitative easing, the global markets witnessed a sharp rally. The biggest beneficiary of the Federal Reserve move was the precious metal gold, which saw a surge in its prices.
Spot gold rose 0.4 per cent to a 6-1/2 month high of $1,774.96 an ounce, adding to Thursday's 2 per cent gain. Both gold and silver have been rising since the start of August because investors were expecting the Fed to take action.
Spot gold rose 0.4 per cent to a 6-1/2 month high of $1,774.96 an ounce, adding to Thursday's 2 per cent gain. Both gold and silver have been rising since the start of August because investors were expecting the Fed to take action.
Investors often put their money into gold when the Fed gets more involved in the economy. Fed actions carry the risk of causing inflation. Some investors view gold as a way to protect themselves from rising prices. Some wondered how long the increase would last.
Jim Walker, Founder & MD, Asianomics told ET Now that he sees gold prices doubling over the next three years, and that he would like to put his money in gold.
"Just get out of equities, buy gold, fixed income assets, high yielding stocks. Buy safety because from hereon, there is going to be carnage on the streets," Walker said.
Jeff Sica, chief investment officer of Sica Wealth Management, which currently manages over $1 billion in client assets, real estate and private equity holdings, now sees gold as the best investment in the face of mass liquidity creation and the weakening dollar.
"The appeal of gold as a shelter from fear and a secondary currency has never been greater," Sica said in an e-mail to Reuters, adding he expected commodity prices to continue rising.
Witnessing a spectacular rally, the Sensex rallied 400 points on the back of a liquidity-driven rally in the global markets after the Fed announcement. Meanwhile, risk assets from Asian shares to commodities rallied while the dollar slipped further on Friday as markets digested the US Federal Reserve's aggressive new stimulus to drive job creation in the US economy.
The Fed's move supported the risk-positive momentum at work since the European Central Bank's bond-buying scheme to get borrowing costs down for struggling euro zone members was approved by Germany's constitutional court.
MSCI's broadest index of Asia-Pacific shares outside Japan soared 2.2 per cent to four-month highs after US stocks scaled multi-year peaks, with the Standard & Poor's 500 Index hitting its loftiest close since December 2007 on Thursday. Japan's Nikkei stock average jumped 1.5 per cent, pulled higher by gains in beaten-down cyclicals, but the firm yen weighed.
The dollar index measured against a basket of key currencies fell to a fresh four-month low of 79.134.
Shanghai commodities futures, from copper, zinc to rebar jumped between 3 to 5 per cent on hopes the Fed's move would bolster global demand for manufacturing and building materials.
"The Fed took the best possible policy option that's available now, aiming to bolster asset prices while taming the rise in key commodities and energy prices but also aiming to achieve an inflation target," said Naohiro Niimura, a partner at
Jim Walker, Founder & MD, Asianomics told ET Now that he sees gold prices doubling over the next three years, and that he would like to put his money in gold.
"Just get out of equities, buy gold, fixed income assets, high yielding stocks. Buy safety because from hereon, there is going to be carnage on the streets," Walker said.
Jeff Sica, chief investment officer of Sica Wealth Management, which currently manages over $1 billion in client assets, real estate and private equity holdings, now sees gold as the best investment in the face of mass liquidity creation and the weakening dollar.
"The appeal of gold as a shelter from fear and a secondary currency has never been greater," Sica said in an e-mail to Reuters, adding he expected commodity prices to continue rising.
Witnessing a spectacular rally, the Sensex rallied 400 points on the back of a liquidity-driven rally in the global markets after the Fed announcement. Meanwhile, risk assets from Asian shares to commodities rallied while the dollar slipped further on Friday as markets digested the US Federal Reserve's aggressive new stimulus to drive job creation in the US economy.
The Fed's move supported the risk-positive momentum at work since the European Central Bank's bond-buying scheme to get borrowing costs down for struggling euro zone members was approved by Germany's constitutional court.
MSCI's broadest index of Asia-Pacific shares outside Japan soared 2.2 per cent to four-month highs after US stocks scaled multi-year peaks, with the Standard & Poor's 500 Index hitting its loftiest close since December 2007 on Thursday. Japan's Nikkei stock average jumped 1.5 per cent, pulled higher by gains in beaten-down cyclicals, but the firm yen weighed.
The dollar index measured against a basket of key currencies fell to a fresh four-month low of 79.134.
Shanghai commodities futures, from copper, zinc to rebar jumped between 3 to 5 per cent on hopes the Fed's move would bolster global demand for manufacturing and building materials.
"The Fed took the best possible policy option that's available now, aiming to bolster asset prices while taming the rise in key commodities and energy prices but also aiming to achieve an inflation target," said Naohiro Niimura, a partner at
Tokyo-based research and consulting firm Market Risk Advisory. "The key is that it's open-ended, eyeing a gradual and longer-lasting effect of monetary easing," he said, adding that base metals such as copper, which has been weighed by concerns about sluggish demand as economic fundamentals weakened, have a big scope for further gains after the Fed's action.
The Fed said it will buy $40 billion of mortgage-backed debt per month until the job market improves substantially as long as inflation remains contained - acting on its dual mandate to maintain price stability and tackle unemployment.
The US central bank also said it was unlikely to raise interest rates from current lows until at least mid-2015, extending the timeframe for such a move from late 2014.
"The Fed decision to introduce the newest round of quantitative easing is less QE3 and more QE Infinity," said Neal Gilbert, currency strategist at GFT Forex in New Jersey, noting that no limit has been set on the intervention.
"With Europe getting their act together (at least temporarily), the Fed flooding the market with cash, and China talking stimulatory infrastructure projects, the three largest influencers of market dynamics could be creating a bull market for at least the near term," he told Reuters by e-mail.
Gilbert expects the strongest reactions in the euro against the dollar, while the yen may face the unintended consequence of appreciating against the dollar to levels that the Japanese authorities would find uncomfortable.
Finance Minister Jun Azumi said on Friday that Japan stands ready to take decisive action against excessive yen rises if necessary after it hit a seven-month high against the dollar following the Fed's move.
The dollar traded up 0.1 per cent at 77.56 yen, recovering from the seven-month low at 77.13 yen touched on Thursday. The euro hit a fresh four-month high at $1.3016
The Fed said it will buy $40 billion of mortgage-backed debt per month until the job market improves substantially as long as inflation remains contained - acting on its dual mandate to maintain price stability and tackle unemployment.
The US central bank also said it was unlikely to raise interest rates from current lows until at least mid-2015, extending the timeframe for such a move from late 2014.
"The Fed decision to introduce the newest round of quantitative easing is less QE3 and more QE Infinity," said Neal Gilbert, currency strategist at GFT Forex in New Jersey, noting that no limit has been set on the intervention.
"With Europe getting their act together (at least temporarily), the Fed flooding the market with cash, and China talking stimulatory infrastructure projects, the three largest influencers of market dynamics could be creating a bull market for at least the near term," he told Reuters by e-mail.
Gilbert expects the strongest reactions in the euro against the dollar, while the yen may face the unintended consequence of appreciating against the dollar to levels that the Japanese authorities would find uncomfortable.
Finance Minister Jun Azumi said on Friday that Japan stands ready to take decisive action against excessive yen rises if necessary after it hit a seven-month high against the dollar following the Fed's move.
The dollar traded up 0.1 per cent at 77.56 yen, recovering from the seven-month low at 77.13 yen touched on Thursday. The euro hit a fresh four-month high at $1.3016
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