22 August 2012, 2:54 p.m.
By Debbie Carlson and Allen Sykora
Of Kitco News
http://www.kitco.com/
http://www.kitco.com/reports/KitcoNews20120822JW_pm.html
(Kitco News) - Gold prices rose in afternoon trading following the minutes from the most recent Federal Open Market Committee meeting that showed a discussion of additional monetary-policy accommodation.
December gold futures on the Comex division of the New York Mercantile Exchange were trading around $1,652.60 an ounce at 2:45 p.m. EDT on Thursday in the thinly traded afternoon session. December gold had settled the day session at $1,640.50.
One minute ahead of the release of the minutes, Comex December gold trading was weaker for the day at $1,638.90 an ounce. But the market quickly added roughly $15 to a new high of $1,654.80 that was the contract’s strongest level since early June.
According to the meeting minutes, the members of the FOMC have taken a step closer to a third round of quantitative easing, or bond-buying purchases to lower long-term interest rates. The Fed signaled that members were concerned about economic growth.
“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the minutes.
After the actual meeting on Aug. 1, the FOMC statement said the Fed would “provide additional accommodation as needed.”
Gold bulls were encouraged when the minutes showed FOMC policy-setters had a discussion on whether to undertake QE3, said Frank Lesh, broker and futures analyst with FuturePath Trading. “The expectations for QE3 are alive and well,” Lesh said.
Still, the language was not explicit in suggesting that more stimulus was the way to go.
“The Fed is walking its verbiage tightrope again,” said Sterling Smith, futures specialist, commodity research at Citibank Institutional Client Group.
Since that meeting, some economic data has improved, such as the July payrolls and higher retail sales, although Smith said that data might not make a difference in the Fed’s view just yet.
One of the tools under consideration was a change in the date for how long the Fed plans to keep its federal funds target at 0% and 0.25%, along with a statement that said a “highly accommodative stance” would be kept even if the U.S. economy started to pick up.
Market participants have been hoping for some sort of stimulus or quantitative easing from the Fed but thus far have been disappointed.
Smith said the Fed might wait to see what happens with food and energy costs. With both stronger, “that might make people nervous,” he said.
Further, there’s the risk of embarking on another stimulus, but having it offset if food and energy costs continue to rise, he said. “Monetary policy is not a panacea,” Smith said.
With the release of the minutes, the markets will now focus on next week’s Jackson Hole, Wyo., Fed symposium to see whether Chairman Ben Bernanke will give any clues about QE3. It was at this confab two years ago that Bernanke signaled the second round of easing which gave rise to a massive asset market rally across the board.
Smith said he doesn’t expect Bernanke to say anything “shockingly” different than what’s been said before. “The Fed has vowed to stay apolitical and we’re just about to head into the heart of the (presidential) campaign so that might have a chilling effect on any commentary,” he said.
Lesh noted market participants will still have to wait a while before any actual accommodation, since the next policy meeting is not until mid-September.
“So you’ve got almost a month to stew about whether you’re going to get any more or not,” Lesh said. “Clearly the Fed won’t move until they get the next set of employment data. But it (the minutes) keeps the hope alive. But you have to hold that hope for a month.”
Meanwhile, Lesh pointed out, the market is also on the lookout for further possible stimulus measures from the People’s Bank of China and European Central Bank. This means potential for three of the largest central banks in the world to provide accommodation. “That’s what gold wants to hear,” Lesh said.
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By Debbie Carlson and Allen Sykora of Kitco News; dcarlson@kitco.com and asykora@kitco.com
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