2011-09-13

Fed will expand its accommodative policies and perhaps launch a third round of quantitative easing (QE3)

The gold price fell $14.27 to $1,818.70 Tuesday morning as sovereign debt concerns in Europe led to broad-based liquidation in financial markets. Gold equities looked to open lower alongside the price of gold. While investments tied to the price of gold have largely benefited from global economic worries, this was not the case this morning. Commenting on the gold price sell-off, long-time commodities investor Dennis Gartman wrote in his daily Gartman Letter that “The margin clerks will be sharpening their knives today and will take dead aim even upon gold if that is where they think they can find liquidity.” He also noted that some investors “will argue that gold will prove valuable and will hold its value even as stock prices plunge, and in the long run they may well be right.”

In the U.S., although economic data was relatively light last week, speeches by Fed Chairman Ben Bernanke and President Barack Obama illustrated that policymakers remain quite concerned over the prospects over a renewed recession. Investors are eagerly anticipating the next FOMC meeting on September 20-21 to see if the Fed will expand its accommodative policies and perhaps launch a third round of quantitative easing (QE3).

This coming weekly contains several key economic reports that are likely to serve as catalysts for the gold price and the direction of U.S. monetary policy. The Producer Price Index (PPI) and Consumer Price Index (PPI) – two key measures of inflation – are due out on Wednesday and Thursday, respectively. Retail sales for August will also be released on Wednesday, followed by weekly jobless claims and the Philadelphia Fed Index on Thursday. Lastly, University of Michigan Consumer Sentiment is due out on Friday.

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