Comex December Gold Futures at a high of $1790 have gained over 12% since the August mid. The surge was fueled on expectations of the Federal Reserve’s fresh round of quantitative easing – the QE3, with more gains occurring when the Fed exceeded expectations by announcing open-ended purchases of MBS – Mortgage-backed securities without a specific timeframe. The sagging Housing market may not recover soon enough as you need to have a job to pay for a Housing mortgage payment & unemployment, already a “Grave Concern,” is still rising. With inflation also expected to rise in the bargain, Gold Futures will continue to gain as a safe heaven asset class. To add more to the Gold Futures buying Euphoria, the ECB & Bank of Japan added to huge bond buying programs & China did its part by announcing an Infrastructure related monetary influx.
Riskier assets fell broadly & the US Dollar index measured against a basket of key currencies rose today while also dampening Gold Futures prices. Ample funds added through further monetary easing should underpin markets, but prices of assets tied to economic fundamentals were likely to be capped, such as crude oil and copper. But Gold Futures may draw investors back over the longer term as a re-flationary policy raises future inflationary risks.
European leaders are struggling to overcome a crisis-fighting stalemate as they face discord over a banking union, Greece’s ongoing debate on how to meet bailout commitments and foot-dragging by Spain and Italy on financial aid requests. Chancellor Angela Merkel and President Francois Hollande clashed on a timetable to introduce joint oversight of the region’s banking sector. Markets that surged this month on the back of a European Central Bank rescue plan and clarity over bailout funding may not offer European leaders the time they need as an easing in market pressure raises the risk of policy complacency. Deadlock over the banking union could delay until next year a key building block in resolving the crisis, compounding turmoil that’s so far engulfed five of the Eurozone’s 17 nations, reported Bloomberg. The news triggered a decline in Gold Futures as investors took up long US Dollar positions on expectations that fresh policy snags that could further delay solving of the Eurozone debt crisis. Spanish Prime Minister Mariano Rajoy has displayed reluctance to seek more help after ECB President Mario Draghi unveiled the central bank’s bond-purchase plan, linked to conditions for recipient states, on Sept. 6. Spanish Deputy Prime Minister Soraya Saenz de Santamaria said last week Spain will consider a bailout if conditions are acceptable.
Another uncertainty which persisted as major economies took action is whether China will ease monetary policy, with its economy on course to show slower growth for the seventh straight quarter over the current period. A senior official was quoted by state media on Sunday as saying that China plans to stick to its tight property sector policies, reinforcing officials’ reluctance to ease property market restrictions to bolster the economy.
Spain was considering freezing pensions and speeding up a planned rise in the retirement age, raising hopes for the country applying for a bailout, but uncertainty remained over whether and when such a move would come, reported Reuters. A credit review by ratings agency Moody’s, due by end-September, could prompt such a move if Moody’s downgrades Spanish debt to junk status. A bailout would allow the ECB – European Central Bank to step in and buy Spanish sovereign debt, which would lower borrowing costs in the large European economy. European Union paymaster Germany said on Friday that Spain does not need a European bailout, dousing financial market expectations that Madrid will gain early relief from European Central Bank bond-buying. Spain insisted on Saturday it will not rush to seek a sovereign bailout, even as the country suffers from a high deficit, soaring debts, a banking sector burnt by the bursting of a real estate bubble and a deepening economic contraction.
The unrestricted new US policy for quantitative easing to print more currency and bonds with no limits imposed whatsoever, signals rabid inflation with a huge potential for Hyper-Inflation. This will keep a strong floor supporting Gold Futures on all declines. Inflation will continue to rise as the Fed & the ECB will keep flooding the markets with paper until they are satisfied they have won & brought about a huge change. Higher Taxations, Austerity measures & Inflations will soon hit ceiling, and then – Bang, the great reversal will hit in a huge uncontrollable manner. New and heavier tax burdens will crush individuals and companies, smothering existing potential growth and blocking new start-ups. Banks are loaded with taxpayer cheap money furnished by the federal government. They can just hold it, and earn a small but steady interest income on the rate spread, basically doing nothing. With interest rates at drastically low levels, small savings accounts & other conventional safe money growing vehicles no longer seem enough & the need to overcome the speed of Inflation will lead investors to riskier asset classes. Massive money printing will also demolish the value of the held currency violently. Simple Day trading & not “Long term investments” would be the need for the Future. With so much of insecurity going around, even the most fundamentally strong investment may simply collapse. “Putting money into something with an expectation of gain without thorough analysis, without security of principal, and without security of return is speculation or even better said- Gambling. As such, those shareholders who fail to thoroughly analyze their stock purchases, such as owners of mutual funds, could well be called gamblers. Indeed, given the efficient market hypothesis, which implies that a thorough analysis of stock data is irrational, most rational shareholders are, by definition, not investors, but speculators.”
A lot of funds have lately been buying Gold since mid-August due to the fact that major central banks around the world have increased bond-buying programs and increased stimulus efforts. Gold Futures may witness some mild profits booking as October contracts close to expiry going by the end of the month and with the end of the second quarter also, means potential for profit-taking from fund managers who would want to show they’ve had a good month or quarter. A rise above $1800 may trigger technical buying stops which may lead to a potential resistance of $1855 for Gold Futures.
This week & most of the next week may keep Gold Futures in high turbulence mode as alerted last week: Gold Futures in Turbulent times. All dips in Gold Futures will continue to be bought as market participants remain bullish on Gold Futures Prices, which tend to benefit from easy monetary policy. Bullishness has set in more due to the slew of loose monetary policies announced a the last few weeks. Holdings in the SPDR Gold Trust, the world’s largest Gold ETF – exchange-traded fund, had climbed to 1,317.762 metric tons by Sept 21, its highest level since July 2010. Barring surprise developments in the Eurozone over the ongoing debt crisis or any Middle East tensions, this week would mostly be a quieter one. Key U.S. economic reports include the consumer confidence index on Tuesday, new-home sales Wednesday, then weekly jobless claims, durable-goods orders and gross domestic product on Thursday. Friday brings personal income and spending, the Chicago Purchasing Managers Index and Thomson Reuters/University of Michigan Consumer sentiment index.
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