Fed launches QE3: Markets get relief!!!

Last week we saw great volatility in precious metals. Gold that had reached a high of Rs. 32,200 per 10gram had plunged down to almost Rs. 31,800 and then bounced back to a new high of Rs. 32,650 after the Fed meeting. Such huge fluctuations were seen after Bernanke’s speech, in which he announced the launch of QE3.

Internationally, gold will cross $1800 ounce by year end, effect of which will be seen on the domestic prices too where gold is expected to cross Rs. 35,000 per 10 gram by year end.

The commodity and financial markets were shocked with the announcement made by the FED on Thursday. The Fed decided of buying open ended asset. This decision of the Fed created great impact on the markets in Thursday and Friday and it will continue to show it’s after affected in the weeks to come.

The market was surprised by this asset buying decision of the Fed. Traders and analysts did expect a third round of quantitative easing, but they did not expect that the Fed would take the asset buying decision.

The Fed declared that it would continue to buy asset until the labor market improved and the economy began to grow. Moreover the Fed said that it would continue with stimulus even if inflation began to exceed the

Apart from the meeting, other factors that are likely to influence the market are:

1. Tensions prevailing in the Middle East as more embassies are under the threat of attack.

     2. Business data, GDP growth released by the US, Euro zone and China

     3. Philly Fed Index and Empire State Index scheduled for discharge.

Apart from gold, one metal that has once again caught attention by investors is silver. Gold has already marked its lifetime high by crossing Rs. 32,200 and on the higher side is expected to touch 35,000. However, for silver there is immense space for growth. Last year silver peaked to almost 75,000 per kg. With current silver prices hovering at around 65,000 per kg and there are bright chances of an upward movement towards its peaked point. Silver is surely going to be the next favorite metal.

BULLIONS: 1st to 10th Sep, 2012

The prices of gold and silver resumed their rally, much like the U.S stock market. Further, the rise of major foreign exchange rates including the Euro, Aussie dollar and Canadian dollar against the USD may have also contributed to the recovery of bullion rates.

The U.S ADP Non-Farm Employment Change was expected to have a clear and substantial effect on commodities, equities and forex markets. If the report shows growth rate of above 120thousand jobs then the chances of the FED introducing a stimulus plan in 2012 will be lower. This report plays an important role not only for the US dollar but also for the bullion prices. A stable labor market would reduce pressure on the Fed to take aggressive monetary easing as its Sept. 12-13 policy meeting, such as a 3^rd round of bind buying known as quantitative easing, to underpin growth.

On 7th September, the price of gold rose by 0.68% to $1,705; Silver also increased by 1.07% to $32.67. During the week, gold increased by 1.07%; silver by 3.92%. Comex gold futures prices ended the U.S. day session with moderate gains Thursday, and hit a fresh six-month high early on.

The monthly meeting of the European Central Bank did produce the widely expected, fresh EU monetary stimulus plan, in which the ECB will buy EU countries’ bonds. The bank left rates unchanged at 0.75%, but ECB President Mario Draghi announced an “outright monetary transaction” plan, which would allow the ECB decide when to start, continue or suspend bond purchases.

In a press briefing after the ECB meeting, Draghi said this plan allows the central bank “to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro.

The bond purchases would be “sterilized,” meaning that the amount of money put into the market via bond buys would be taken out taken out of the system in equivalent measures by other means. Also at the meeting, the ECB lowered its forecast for European growth. Since Draghi spoke, gold prices came off of their six-month high, but have held above $1,700.

Market sentiment improved after the data showed U.S employment rose more than expected and growth in the services sector gathered pace. The combination of the U.S. jobs figures and the ECB’s downward growth revision helped the U.S. dollar recover from earlier weakness.

Increase in gold prices internationally also created an impact on the domestic market

Last week, In India, gold peaked to its lifetime high crossing the 32,000 mark, just ahead of the huge festive season.