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Guest Commentary: Gold & Silver Daily Outlook 08.29.2011

Guest Commentary: Gold & Silver Daily Outlook 08.29.2011

2012-08-29 11:47:00
Lior Cohen: Commodities Analyst,
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There are renewed speculations around the future steps of the Fed and whether there will be an announcement of another quantitative easing plan in the near future. Last week's publication of the minutes of the FOMC meeting revealed that the Fed might be closer, than many (including me) had anticipated, to issuing another quantitative easing plan. This news reheated the precious metals markets.

In recent FOMC meeting there were no big surprises and the bullion market didn't react well to the news from the meetings. The table below shows the gold and silver market reaction following the FOMC meetings. In three out of the four meeting gold and silver prices tumbled the next day.

Guest_Commentary_Gold_Silver_Daily_Outlook_August_29_2012_body_FOMC_August.png, Guest Commentary: Gold & Silver Daily Outlook 08.29.2011

The relation between the money base and precious metals prices was positive in recent years: as the money supply rises, gold tends to rise. I have also showed the strong relation between QE programs and bullion rates. This could suggest there will be another rise in gold and silver, if the Fed will issue QE3. But this could have a weaker effect than the first and second QE programs have.

There are concerns that another quantitative easing plan might have diminishing returns. After all, some think that QE2 didn’t have the same impact on the market as QE1 had.

The upcoming speech of Bernanke at Jackson Hole titled "Monetary Policy Since the Crisis".

In the past Bernanke's speeches were unpredictable: In his testimony, back in June, at the Senate, Bernanke didn't hint of any QE programs. The following day bullion rates tumbled. But at his speech from March, the Chairman of the Fed rekindled the expectations of another stimulus plan in the near future.

In his upcoming speech there might be some additional hints of the future steps of the Fed but I don't think this speech will be enough to rally bullion prices.

Further, I don't think the Fed will announce of QE3 in the upcoming FOMC meeting because, among other reasons, the current political climate in the U.S doesn’t warrant such a shift. Therefore, there is a chance that Bernanke's speech and the next FOMC meeting could curb the recent rally of gold and silver.

For further reading: Gold & Silver | Weekly Outlook August 27-31

By: Lior Cohen, M.A. in Economics, Commodities Analyst and Blogger at Trading NRG

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