[miningmx.com] – THE price of gold increased the most in well over a year after the US Federal Reserve stepped back from tapering quantitative easing, but analysts remained sceptical as to the long-term fortunes for the metal.
The Federal Reserve currently buys about $85bn in bonds per month, a strategy that is aimed at increasing the supply of money into the US economy. The thinking is that more money will become available for loans while interest rates would also fall. The consumers would therefore buy and build homes and invest in business.
“Gold’s upside may be limited if investor expectations shift to a tapering in December,’ James Steel, an analyst at HSBC Securities told Bloomberg News.
“If the US dollar keeps on the defensive gold is likely to stay firm, but additional gains may be limited. The buying witnessed in the aftermath of the FOMC (Federal Open Market Committee) statement is partly short-covering but also some fresh buying,’ he said.
Spot gold gained 4.2% to $1,364.26 an ounce by late afternoon in New York representing the biggest one-day per centage gain since June 1, 2012. It was last trading at $1,360/oz.
For South African gold producers, the gain in the gold price was somewhat dampened by a strengthening in the rand from 9.8 to the dollar on September 18 to 9.57 against the dollar today.
The effect is that gold producers such as Sibanye Gold, Harmony Gold and AngloGold Ashanti will received R10,000 more per kilogram of gold produced owing to the dollar gold price increase on a rand gold price of R417,000/kg compared to R407,000/kg on September 18.
BNP Paribas said gold bulls ought not to get carried away by the gains in the price of bullion. “We believe the Fed sealed gold’s longer-term fate at its June FOMC meeting with the suggestion of an eventual exit from QE3 (a third round of quantitative easing) sometime during 2014,’ it said in a report earlier this week.
Publishing before the Fed’s announcement, the bank said that even if there was no tapering, the Fed would nonetheless embark on slimming the stimulus spending in the next three to six months.
Fundamentals for gold are not positive, although the yellow metal may see occasional rallies off technical chart support levels, it said.
There was some potentially good news for gold, however, after a White House official revealed that Janet Yellen, the current Federal Reserve vice chairperson was a leading candidate to replace Ben Bernanke, the current Fed chairperson.
Reuters said Yellen was a strong supporter of Bernanke’s policies and should keep US interest rates low for an extended period of time.
“The next expected Fed chairperson Yellen, is also committed to jobs creation and continued stimulus till there is improved data, which plays into higher gold prices,” Thomas Capalbo, a precious metals broker at Newedge, told Reuters.
Other analysts saw the uncertainty of quantitative easing as a positive for the gold market, saying the metal would thrive in such an environment.
“There is no immediate visibility as to how much tapering will be done and when, so devaluation of currencies marches on,” Jeffrey Sica, chief investment officer at Sica Wealth Management told Reuters. “And as long as that happens, gold looks attractive,” he said.
