'QE Unlimited' Sparks 'Risk-On Party' as Dollar Sinks, Precious Metals Jump

September 19, 2013

WORLD stock markets, foreign currencies and commodities extended yesterday's jump versus the US Dollar in Asia and London on Thursday morning, with gold regaining the $1370 level it leapt to after the Federal Reserve voted not to trim its quantitative easing program.

Defying the expectations built since April, the Fed gave financial markets what one FX strategist called "a massive green light for a risk-on party."

Silver hit a new 5-week low shortly before the US central bank's announcement. It stood 9.5% higher barely an hour later.

"We are in QE unlimited," said money-manager and Gloom, Boom & Doom publisher Marc Faber, speaking to Bloomberg last night and stating that "I always buy gold...I view it as an insurance policy. I think responsible citizens should own gold.

"The Fed don't know anything else to do [but print]. They've boxed themselves into a corner."

Discussing the next likely chair of the US central bank, "Janet Yellen will make Mr.Bernanke look like a hawk," Faber said.

The US stock market yesterday surged to new all-time highs.

Gold prices gained 6.4% from their earlier low, and silver enjoyed its biggest one-day jump since June 2012.

Bond prices rose to push 10-year Treasury yields to a 3-week low, falling at the fastest pace since 2011.

"The [failure to taper] put markets in celebratory mood," says Commerzbank's daily precious metals note, adding that "the development of ETF holdings over the next few days will give us a clearer picture here.

Because on Wednesday, says the bank, "gold ETFs again saw slight outflows."

Investors in all markets "turned to the buy side with a vengeance," says Edward Meir for brokers INTL FCStone.

But "although the Fed decision is a potential game changer and may give gold a new lease on life," Meir adds, "we would be looking for higher volumes and increased ETF buying to lend further credibility to Wednesday's gain."

"I cannot get overly excited about gold up here," agrees Marex Spectron's David Govett.

"This rally was as much about short covering as it was about fresh buying. Fundamentally nothing has changed. At some point the Fed will taper."

Silver's 7.1% rise from Wednesday to Thursday's London Fix was the 78th largest move in 45 years.

Gold began rising before Wednesday's statement, adding $20 of the $83 per ounce it would gain by this morning's peak in late Asian trade.

Gold rose less quickly for non-US investors, however, as the Euro and Sterling both hit their best levels since midwinter on the FX market.

The Dollar also fell in a straight line against emerging-market currencies previously dented by taper expectations, losing 3% against the Indian Rupee, Brazilian Real and Turkish Lira.

"We think it's very important that emerging markets grow and are prosperous," said chief US central banker Ben Bernanke on Wednesday.

"We play close attention to what's happening in those countries. It affects the United States. [But] what we're trying to do with our monetary policy...is to create a stronger US economy."

Meantime in India – the world's largest consumer market for gold – industry group the Bombay Bullion Association said it unanimously backs nationalist BJP candidate Narendra Modi as prime minister in the 2014 election.

"The bullion traders in this country are desperately looking for a change in the Indian political system," said BBA president Mohit Kamboj.

"Narendra Modi is the right choice," he added, repeating how gold and politics in India were seen interacting earlier this week by BBA colleague Mukesh Mehta.

"We wish BJP to come to power and run this country."

Ruling Congress Party economic affairs secretary Arvind Mayaram today said the government's aggressive anti-gold import rules had cut inflows "drastically".

"Because of the measures we have taken we expect imports of only 750 tonnes [in 2013]," he said – a drop of 11% from fiscal-year 2012.

 

Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.

 

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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