Fed Did Not Disappoint Gold Market, Sharps Pixley

September 14, 2012 – Precious metals trader Sharps Pixley points out that the 1.81 percent surge in U.S. gold Comex futures is priced based on the commitment from the U.S. Federal Reserve to a third program of quantitative easing, announced this week.

The 1.81 percent gain in U.S. gold Comex futures this week follows fast on the heels of a 3.13 percent gain last week with gold briefly exceeding the $1,770 per troy ounce level in intraday trading on Thursday.

Year-to-date, gold futures have gained 12.94 percent against a 17.94 percent gain in the S&P 500 index and a 14.72 percent gain in the Euro Stoxx 50 index. For the week, the S&P 500 only gained 0.77 percent and the Euro Stoxx 50 index only gained 0.59 percent against the 1.81 percent gain in gold.

September 13, the U.S. Federal Reserve did not disappoint markets and announced the long-awaited third round of quantitative easing, hoping to improve the labor market in the U.S. The Fed has promised it will make an open-ended purchase of $40bn of mortgage-backed securities each month until there is an ongoing and sustained improvement in the jobs market.

Recent U.S. jobs reports have been lackluster, and have largely added to the QE-anticipation in markets, with only 96,000 jobs being added to the U.S. economy in August.

The Federal Reserve also pledged to hold interest rates at or near zero percent until at least the middle of 2015.

Inflation risk and fear based on the easing brought gold futures up 2.22 percent while the CRB Commodities Index reached a five-month high.

Analysts with Bloomberg forecast a median gold price at $1,750 per troy ounce in 2013. The range predicted by the analysts is near $1,560 per troy ounce on the bearish side and $2,050 per troy ounce on the bullish. An analyst with Citibank compared the gold price breakout of the week of August 27, 2012 with that of September 3, 2007, predicting the gold price could reach $2,450 to $1,500 per troy ounce by Q1 2013.

Markets will likely look toward the Eurogroup meeting and the Spanish aid discussions set to take place on the 14th and 15th of September. U.S. August housing starts are released on the 19th, and China’s September HSBC flash PMI, the EU September flash manufacturing index, and U.S. initial jobless claims are highlights for investors over the coming month.

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