Gold ETFs have risen to a six-month high with the precious metal trading around $1,770 an ounce as the Federal Reserve delivered even more than expected on its stimulus pledge.
The race to debase currencies continued last week after the FOMC delivered more than expectations on new easing targets.
Last week’s rally kicked off as the ECB’s new unlimited bond purchasing plan was supported by the German Constitutional court’s rejection of challenges to the European Stability mechanism (ESM).
While conditions were attached to the ESM ruling, markets responded optimistically. This was swiftly followed by the Fed’s announcement that it is launching a third round of open-ended quantitative easing and that the Fed Funds rate will be held close to zero at least out to mid-2015.
Of particular note, the Fed stated that it “expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens,” highlighting that more QE rounds and other
unconventional monetary policies will continue until US employment and the US economy are fully back on a self-sustaining track.
Gold, silver, platinum and palladium rallied strongly together with most other commodity “hard assets.” Net long gold and silver speculative futures positions have rebounded strongly, but as of last Tuesday (most recent CFTC data), remain well below previous highs, indicating scope for further gains.
Precious metals could also benefit from an official Spanish bailout, as this would unleash potential “unlimited” ECB bond buying.
German business sentiment on Tuesday will provide an indication of Germany’s economic health, while the likely weakness in Eurozone manufacturing data will be in evidence toward the end of the week. Meanwhile, investors will be keeping an ear to the ground for signals of a Spanish bailout request, which is likely to benefit cyclical assets, as it has the potential to unleash “unlimited” ECB bond buying.
ETFS Physical Swiss Gold Shares (SGOL)