Gold and Silver surged sharply higher after the FOMC announcement that the Federal Reserve has launched more Quantitative Easing- the much awaited QE3. Comex Gold December shot up from the day’s (also the week’s) lows close to $1702 to a fresh six-month high of $1,775.00 as forecasted a day back, the highest for a most-active contract since Feb. 29. Given 12 Sep in: Gold Futures may soon enter last Massive Rally Lap:- Alerted therein was that Comex Gold Futures remain strong till above the crucial $1702 level & can surge to target upside levels of $1756, $1774 & $1810 also. The longer term Target of $1855 for Gold Futures remains within close reach on fresh US Monetary Easing. Till a few minutes before the FOMC announcement Gold had slumped off on some nervousness & traders preferred to maintain a cautious approach on mixed sentiments towards the crucial & much-anticipated FOMC meeting results, but Gold surged happily within minutes to the day’s highs after the aggressive announcements. When combining the MBS- Mortgage Backed Securities and the purchases via Operation Twist, the Fed is buying $85 billion each month through the end of the year.
Gold, Silver, Metals & Equity Markets welcome QE3 & Multiple Stimulus Efforts:
Commodities surged to a five-month high after the Federal Reserve announced a third round of fiscal measures to bolster the U.S. economy, fueling expectations that raw-material use will increase, reported Bloomberg. The Fed’s QE3 compliments the ECB Bond Buying program & the ratification of the ESM timing as appropriate to add to the Global efforts to contain a crisis spreading wide. Gold and Silver gained the most in 10 weeks, leading the rally. Markets had anyways harbored a bullish outlook for Gold Prices. Market expectations favored the view that Bernanke will announce the QE3 or some sort of fresh stimulus package yesterday, after last week’s atrociously dismal U.S. jobs report. The FOMC statement was aggressively accommodative, which surprised even those who were already expecting QE3 to be announced Thursday. The Fed will now pump $40 billion a month into the U.S. financial system and will keep interest rates very low until at least 2015. That news sunk the U.S. Dollar index which extended its losses & hit a fresh four-month low and was bullish for the U.S. Equity Market which surged to a new 4 year high. The LME – London Metal Exchange index, which includes Aluminum, Copper, Lead, Nickel, Zinc and Tin, rose for the fifth straight session, the longest rally in eight months. The highlight & also the most unusualness about the QE3 is that it has an open-ended timeframe which makes it positive for Gold because it heightens the inflation fears and weakens the dollar. The start to a Gold Price Rally & the QE3 timing were almost sealed when Federal Reserve Chairman Bernanke’s comments in Jackson Hole that QE could help alleviate the stubbornly high unemployment rate, calling the employment situation in theU.S. “A grave concern.” The final boost for Gold came when the U.S. Department of Labor released a lower-than-expected August employment report. On top of expected stimulus from the Fed, Gold found initial support on fresh stimulus from the European Central Bank and China.
Unlimited QE3 is Gold Supportive:
The $40 billion of mortgage debt each month will increase liquidity, thereby increasing potential for more Inflation, which in turn is good news for Gold. The Federal Reserve didn’t set any limit on the ultimate amount of large-scale asset purchases it would buy or the duration of the program. This stimulus will be expanded until the Fed sees “sustained improvement” in the labor market. Comex Gold till above $1742.5 may keep its momentum intact for further rises to $1797.4, $1825.3 & then to $1855 – a major resistance zone. MCX Gold remains vulnerable on the INR valuations against the now declining US Dollar. MCX Gold may keep strength till above Rs. 32,140 for further Targets of Rs. 32,608 & 32,896 also.
Silver should be the Metal to watch out for as repeatedly alerted since long. A push above $34.75 has the potential to send Silver prices to above $44.20 & then close to $50.50 also. Base Metals have already shown a steady rise for the last two weeks & seem to have more steam left for further rises.
Other Factors Supportive of Higher Gold Prices:
The IMF said yesterday that Greece would need a third round of financial bailout assistance. In South Africa, newspapers report striking Gold miners marched to hostels and mine shafts at the Gold Fields KDC West mine to prevent non-strikers from working. Around 15000 workers at KDC West began striking on Sunday. There have been calls for a nationwide mining strike following a series of disturbances of several platinum and gold mining sites, including Lonmin’s Marikana platinum mine, where 45 people have died since protests began, including 34 shot dead by police last month. Crude Oil prices advanced to a four-month high on the QE3 news & also on concerns that protests in the Middle East andNorth Africamay lead to supply disruptions.
The QE3 that influenced a Global Rally in Gold, Equity & Commodity Markets:
The unusual QE3 definitely is a significant shift in FOMC policy & a very aggressive commitment to success on its mandates. The Federal Reserve said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month in a third round of quantitative easing as it seeks to boost growth and reduce unemployment.
“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said. The Fed does not have a defined upside limit to securities purchases, except to say that these will continue until the outlook for the labor market improves. If unemployment stays high, this means asset purchases will continue automatically. The FOMC said it would likely hold the federal funds rate near zero “at least through mid-2015.” The Fed said it will continue its program to swap $667 billion of short-term debt with longer-term securities to lengthen the average maturity of its holdings, an action dubbed Operation Twist. The central bank will also continue reinvesting its portfolio of maturing housing debt into agency mortgage- backed securities.
The decision risks provoking a renewed backlash from Republicans, including presidential nominee Mitt Romney, who say Bernanke’s policies threaten to ignite inflation while doing little to spur the economy. Representative Paul Ryan of Wisconsin, Romney’s vice presidential running mate, yesterday said the Fed is “trying to make up for failed fiscal policy.”
The U.S. economy remains vulnerable to the so-called fiscal cliff, the $600 billion of tax increases and spending cuts that will kick in automatically at the end of the year unless Congress acts, Bernanke said. Europe’s sovereign debt crisis may also weigh on growth, he said.
Influence of QE3 on Gold Prices, INR & Equity Trading in Indian Markets:
The much awaited third round of quantitative easing by the Federal Reserve & a fuel price hike decision by the Indian Government helped the Indian Equity benchmarks rise to a massive 7 month high. The government may also clear FDI in aviation and broadcasting soon which may give the necessary boost to the Indian Equity Market. The Indian Rupee has rallied up as expected but is yet trading around 54.60 per US Dollar, from the 58.4 life time low, seen a few months ago & yet has huge potential for corrections. Capital inflows from foreign funds in equity markets also boosted the Indian Rupee. MCX Gold Prices shot up yesterday to a New Record of Rs. 32,421 for October contracts from it’s the day’s low of Rs. 31,667. MCX Gold Prices have seen a steady rise even when Gold Prices have been on a decline in the International Markets due to the heavy depreciation of the INR / US$. For detailed explanations read more at – Posted 5 Sep:- MCX Gold Prices in India seem Vulnerable to Potential INR Volatility. Gold Prices in India seem poised to face a very high volatility period, taking into consideration the expected Monetary Infusions by the ECB & the US Fed any time now. These infusions, be it from the ECB or the US Fed, will potentially weaken the US Dollar & simultaneously strengthen the Euro. Comex Gold Prices will rise sharply on the same but the weakening US Dollar may strengthen the INR at the same time & in return weaken MCX Gold Prices (inIndia).
The BSE SENSEX climbed 423.62 points or 2.35% to 18,444.78 and the 50-share NSE Nifty jumped 132.15 points or 2.43% to 5,567.50, in line with strong global markets and the government’s move to hike diesel prices by Rs. 5 per litre to cut subsidies and reduce fiscal deficit. Nifty can expect a resistance towards a 5626 – 5671 range. A sustained Breakthrough above this range could lift the Nifty to above 6040 levels also.
The Wholesale Price Index (WPI) for the month of August rose to 7.55% compared to 6.87% witnessed in July. August inflation was expected at 7.06%. Meanwhile, June inflation has been revised to 7.58% (7.25%). Food articles inflation fell from 10.06% in July to 9.14% in August.