2010-11-01

Speculation over the magnitude of the Fed’s anticipated quantitative easing continues to drive gold metals markets

Speculation over the magnitude of the Fed’s anticipated quantitative easing continues to drive precious metals markets, especially gold. Yesterday expectations that the intended monetary stimulus would be large were fuelled after the Fed surveyed bond dealers asking how asset purchases might influence yields.

Estimates for QEII are as high as $2tr, although consensus remains for around $500bn as an initial announcement next week. As stated yesterday, we believe the risk is that the Fed will disappoint the markets, and rather announce a staggered approach with smaller amounts of asset purchases on a monthly basis. If so, gold could fall next week.

Nevertheless, we place a floor of $1,280 on the gold price, as this is the price we find consistent with no additional stimulus. This morning, gold and silver have come under pressure as the dollar regains some lost ground. Physical selling and investor profit-taking has added to the downward pressure, although the market is relatively thin. Seasonal jewellery demand (Diwali
next week) could prompt some price support in the dips.

Gold support is at $1,327 and $1,313. Resistance is at $1,351 and $1,360. Silver support is at $23.62 and $23.29, resistance is at $24.15 and $24.36.

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