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There may be several reasons for the price behaviour in gold in the Bank’s view: one is that the move by the Fed was widely expect and therefore was likely priced in to the market. It could also be that concerns..

15 Dec 2012

Commodity Online
Deutsche Bank is concerned that low-growth fears may continue into early 2013, and therefore this period of weakness in the gold market may be extended for a longer period than originally envisaged.

The gold market remains in the doldrums, trading near the bottom of its range (USD1,690/oz to USD1,750/oz).

This is despite the announcement of a further round of quantitative easing by the US Fed, with $45bn/month of treasury purchases.

There may be several reasons for the price behaviour in gold in the Bank’s view: one is that the move by the Fed was widely expect and therefore was likely priced in to the market. It could also be that concerns regarding the possible resolution of the US fiscal cliff seem to be growing, which suggests that the market may start to price in the low-growth consequences of the imposition of higher taxes in the US.

This would result in a further decline in money velocity within the country and therefore an offset to the growth in money supply implicit in the Fed’s QE announcement.

“Given the potential for the fiscal cliff to remain unresolved until January, we expect that the gold market could remain under some pressure.” Deutsche Bank said.

“Furthermore, we note that the Fed’s explicit targeting of unemployment (6.5 %) may be interpreted to be hawkish given the current US unemployment rate of 7.7%. On current trend for example, a 6.5% rate could be achieved by early 2014. This would be earlier than the low-rate commitment by the Fed to 2015.” it added.

As per reports, the fiscal-cliff talks between Obama and Boehner have come to a stand still.

“Even if Boehner and Obama were to reach an agreement, they would need time to sell rank-and-file lawmakers on the compromises it would likely include. They also would need several days to draw up legislation and pass it in the House and the Senate.” Reuters said in an analysis. 


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