Gold Prices ended the previous session slightly lower on some mild profit-booking as traders maintained a cautious approach on mixed sentiments towards the crucial & much-anticipated FOMC meeting results on the fresh Quantitative Easing. Gold Markets for the day could witness choppy two-sided trades. After having been let down several times this year, markets may finally get to see some Fed action which may act as the driver of Gold Prices to higher levels. Gold Prices received a boost earlier yesterday on the ruling ratifying the ESM – European Stability Mechanism treaty by the German Constitutional Court. The court also capped Germany’s contribution at EUR190 bln, with parliamentary approval needed for any increase to this cap. Italian and Spanish bond yields declined following the court ruling, which is another step on the path to stabilizing the European Union sovereign debt crisis. Federal Reserve Chairman Bernanke holds a press conference today afternoon after the 2 day meeting ends. Market expectations favor the view that Bernanke will announce the QE3 or some sort of fresh stimulus package today, after last week’s atrociously dismal U.S. jobs report. Bernanke had mentioned the Unemployment in the US as a “Grave Concern” in his speech at the Jackson Hole symposium. Stable US Inflation condition and High Unemployment rate means perfect potential for monetary action. The U.S. dollar index hit another fresh four-month low, boosting Gold Prices in return. Inducing Quantitative Easing will lead to US Dollar weakness which in turn makes Gold Futures bullish.
Gold Prices may get boost on Multiple & Simultaneous Stimulus Efforts:
Gold Prices continue to hold ground ahead of a crucial decision from the Federal Open Market Committee & seem to sustain the accelerating rally of the last 4 to 5 weeks. The Federal Reserve may also view the timing of the ECB Bond Buying program & the ratification of the ESM as appropriate to add to the Global efforts to contain a crisis spreading wide. The Fed has been waiting long enough & has been keenly observing the kind of action European Union takes, & to then add to the action. Now could be the most appropriate time. Gold Prices are likely to shoot up higher if the FOMC – Federal Open Market Committee announces fresh Quantitative Easing or some sort of fresh stimulus package, but a market with already-heightened expectations for such an outcome would be extremely vulnerable to a sharp sell-off if the Fed does nothing of the sort, which is again less likely. A pullback in the Gold markets could remain limited if the Fed signals that policy-makers remain dovish and easing is still a large possibility.
“People have priced in quantitative easing and the disappointment factor is very high,” said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. “If this Quantitative Easing does not materialize, you’d surely see gold prices fall,” reported Bloomberg.
Markets anyways harbor a bullish outlook for Gold Prices. A bullish situation in Gold Prices is evident on the longer-term charts & could easily digest any shallow or short-lived retractions. Any further major Rally in Gold Prices though could be the last lap for a long time to come. Read more in: Gold Futures may soon enter last Massive Rally Lap. This last but massive rally does not include the small one that has been seen in the last few weeks. It essentially would have to be a major one with Gold Prices soaring to new lifetime highs, probably to our long term forecast of $2200 as given way back in the year 2008. This Bull Run in Gold Prices could commence now or any time soon. The current rally in Gold Futures may remain limited to an upside target of $1855 but for Gold Prices to rise & maintain the rally momentum further, the QE3 would have to be endorsed very strongly. Fresh US Quantitative Easing – The QE3 will probably take the form of outright purchases of U.S. Treasuries and perhaps mortgage-backed securities also to the extent ranging from $550 billion to $700 billion. The Fed also has the option to (Only or Also) extend its low-rate guidance from late 2014 to the mid of 2015 at least.