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Guest Commentary: Gold & Silver Daily Outlook 09.14.2012

Lior Cohen: Commodities Analyst

The prices gold and silver resumed their upward trend soon after the FOMC announced of QE3 that will consist of purchasing additional agency mortgage-backed securities at a rate of $40 billion per month. This news is likely to continue affecting precious metals rates during the day. Currently the price of gold is rising. In other news U.S PPI rose by 1.7% during last month. U.S jobless claims rose by 15k to reach 382k. These news items may have curbed a bit the rally of bullion but the effect of the FOMC decision eclipsed all other news items. On today's agenda: European Council Meeting, U.S Core Consumer Price Index, U.S. Retail Sales Report and UoM Consumer Sentiment.

On Thursday, Gold hiked by 2.21% to $1,772; Silver also rose by 4.46% to $34.78. During September, gold increased by 5.01%; silver, by 10.61%.

FOMC Announced of QE3

I really thought the Fed will wait with the launch of QE3 until after the elections…but the all FOMC members except one decided its time to take it up a notch and release QE3 with no time limit. The FOMC concluded its meeting with a statement that it will continue its "operation twist until the end of the year, keep rates low until mid 2015 – it was previously until late 2014 – and, as said above, launch QE3 that will consist of purchasing additional agency mortgage-backed securities at a rate of $40 billion per month. This news, as expected, pulled up the prices of precious metals. The table below shows the reaction of bullion rates following the FOMC meetings. The last time there was such a strong and positive reaction was back in January when the Fed had pledged to keep rates low until late 2014. This also suggests, assuming all things equal, that bullion rates will continue to rise during the day.

Guest_Commentary_Gold_Silver_Daily_Outlook_September_14_2012_body_FOMC_13.png, Guest Commentary: Gold & Silver Daily Outlook 09.14.2012

On Today's Agenda

European Council Meeting: The European Council Meeting will be held in Brussels and the EU ministers of finance will meet and converse about the recent political and monetary changes in Europe;

U.S. Retail Sales Report: in the recent report regarding July, the retail sales rose by 0.8% from the previous month; gasoline stations sales increased by 0.5% in July compared to June;

Daily Outlook

The prices of bullion hiked yesterday soon after many learned that the Fed did launched another quantitative easing plan. This plan, as oppose to the previous plans – QE1 and QE2 – has no time frame, and is only concentrated in mortgage backed securities and not other securities. This plan along the pledge to keep short terms rates low until mid-2015, and the extension of operation twist – in order to pull down the long term government bond yields – should help jump-start the U.S economy. The Fed also stated that if needed it will implement additional monetary maneuvers while keeping close attention on the inflation. I guess the recent U.S reports including the non-farm employment report (only 96k added jobs), the U.S GDP that grew by only 1.7% were the tipping the point for the Fed to issue QE3. This also means that the prices of bullion are likely to further rise in the weeks to come.

For further reading: On the Relation between QE Programs and Gold

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

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