23rd September 2013

Gold shaping to benefit from QE uncertainty... 

Gold prices had been holding tight on the expectation of 'tapering' of the US Federal Reserve's Quantative Easing (QE) or money printing policy.

However on Wednesday the Fed announced that it would continue to buy US$85B a month in bonds, rather than lower the figure which is what everyone expected. Gold prices immediately shot up for a couple of days before coming off and starting the week lower, probably on the back of some end-of-week profit taking.

Really this was no surprise when you think about it for two reasons, first the Fed needs to keep interest rates low to finance its growing government debt and second with Chairman Bernanke due to step down in a matter of months, he will likely leave the decision and its impact to his successor.

Does this mean the Fed QE program is virtually impossible to unwind? Some are now calling it 'Infinite QE'.

Much of this is to do with the US dollar. There is a fine balance that the Fed and the political movement must tread.

If they unwind QE too quickly, the US economy risks a heavy landing sending the US$ lower resulting in a positive impact on Gold.

Alternatively, if QE continues, as we suspect, then global investors in the US$ will become increasingly more concerned about more and more money printing without any economic strength. Ultimately this leads to a devaluation of the currency, increased inflation and a strengthening Gold price.

It's more about timing!!

Technical Indicators:

The Technical Chartists are now suggesting that Gold appears to have formed a second bottom, higher than the first in late June at US$1,180. This is interpreted as meaning a new bull phase has been established.

The Chartists are now watching out for US$1,440 for Gold and US$25 for Silver to affirm this view.

..... an interesting few weeks ahead with possibly some good buying opportunities.

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