Gold traders the most bullish in 3 weeks after Fed left stimulus alone
NEW YORK (Sept 22) Gold analysts are the most bullish in three weeks after the Federal Reserve's surprise decision not to taper stimulus increased demand for bullion as a hedge against accelerating inflation and currency debasement.
Sixteen analysts surveyed by Bloomberg expect prices to rise this week, five were bearish and five neutral. Gold jumped 4.1 percent Thursday, the most in 15 months, after the U.S. central bank said it wants more evidence of an economic recovery before slowing its $85 billion-a-month of bond buying. On Friday, the precious metal retreated 3 percent to close at $1,332.50 an ounce.
Gold is set for the first annual drop in 13 years as some investors lose faith in the metal as a store of value amid signs economies are strengthening. Fed Chairman Ben Bernanke surprised analysts who predicted a $5 billion cut. He said he was concerned that market interest rates, driven higher by his own suggestion that he would scale back stimulus, would curb growth. As gold surged, the dollar slumped to a seven-month low.
"The Fed has realized that any attempt to reduce or eliminate quantitative easing will lead to a surge in interest rates," said Jeff Sica, who helps oversee more than $1 billion as the president of Sica Wealth Management in Morristown, N.J. "There will be ongoing currency devaluation both in the U.S. and around the world. I anticipate significant fundamental strength in the price of gold in the near term."
The metal fell 19 percent an ounce in London this year after slipping into a bear market in April. Prices rebounded as much as 6.5 percent since reaching a five-week low Sept. 18.
Bullion rose 70 percent from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by buying debt, increasing concern about currency debasement. Bernanke said there is no fixed schedule for tapering, and a statement from the Fed signaled interest rates will stay near zero as long as unemployment remains above 6.5 percent and inflation forecasts don't exceed 2.5 percent.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, dropped 2.5 percent in the past two weeks, reaching the lowest since Feb. 19. Gold moved in opposite directions to the dollar in 11 of the previous 12 quarters. Global equities reached the highest in five years Wednesday.
The latest Fed decision and a debate among U.S. lawmakers about whether to raise the nation's $16.7 trillion debt ceiling means gold could gain further in the near term, Goldman Sachs Group Inc. wrote in a Wednesday report. The bank restated its prediction that prices will resume a drop into 2014 as U.S. economic growth gains and monetary policy is tightened. It forecasts $1,050 at the end of next year.
