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Gold may be buoyed by expectations of further monetary-policy easing at the December 11-12 meeting of the Federal Open Market Committee, said HSBC Holdings plc (HSBC).

23 Nov 2012

NEW YORK (Commodity Online): Gold may be buoyed by expectations of further monetary-policy easing at the December 11-12 meeting of the Federal Open Market Committee, said HSBC Holdings plc (HSBC).

The Fed currently is conducting two programs. One is known as “Operation Twist,” which involves the extension of the average maturity of the Fed’s securities portfolio through the simultaneous sale of short-term Treasuries and the purchase of longer-term ones.

The second program, commonly referred to as Quantitative Easing 3, is the outright monthly purchase of $40 billion a month in agency mortgage-backed securities.

“The Fed cannot continue with “Operation Twist” since holdings of short-term Treasuries will have been exhausted. This means the FOMC could shift directly into another large-scale asset purchase program,” said Kevin Logan, HSBC’s chief U.S. Economist.

“Bullion is historically sensitive to monetary easing expectations. We have noted…that gold tends to react more favorably to Fed announcements of outright asset purchases when compared to maturity extension programs such as ‘Operation Twist.’ As such, an announcement by the Fed of another round of quantitative easing would be a bullish case for gold, we believe,” said Jim Steel, HSBC precious metals analyst.


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