FOMC meeting (21 September) which may signal that monetary easing is on the cards

In President Obama’s much-anticipated speech last week, he proposed a plan that would inject $447bn into the US economy. The focus of the plan is a $250bn reduction in payroll taxes, while $150bn has been allocated to infrastructure spending. Speculation is that this plan could add between one and three percentage points to GDP in 2012. Nevertheless, markets have been uninspired, with safe-haven assets (such as gold) continuing to garner interest. Perhaps investors are sceptical that Congress will pass this plan (especially after the recent debt ceiling negotiations).

Fed Chairman Bernanke’s address last week disappointed market participants who were looking for a stronger indication of further QE3. However, analyst has pointed out, he again referenced the next FOMC meeting (21 September) which may signal that monetary easing is on the cards. While our bullish view on gold is independent of further monetary easing
by the Fed, such an action would only serve to open up more upside. Adding to last week disappointment, were the ECB and BoE which gave no indications of further monetary easing.

With concerns over the Eurozone still very much front of mind, many participants might be looking for some progress on this issue. Gold support is at $1,833 and $1,787

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