While the Fed launched the QE3 and would purchase a total of $85 billion of Treasury securities (from the Operation Twist) and mortgage-backed securities (from the QE3) per month for the rest of the year, Charles Evans, the President of the Federal Reserve Bank of Chicago predicted that these purchases will continue into 2013 to help push down the unemployment rate to 7 percent, even with inflation ticking beyond 2 percent. The U.S. only added 96,000 jobs and saw industrial production plunged 1.2 percent month-on-month in August. China’s August year-on-year industrial production dropped below 9 percent, the lowest growth since May 2009. The Eurozone industrial production contracted for the eighth month in July. Strategists around the world warned that even with the global central banks easing monetary policy, economic growth is still pretty vulnerable unless the European structural growth problems and the U.S. fiscal cliff are resolved.
On the commodities side, the U.S. CFTC data showed that as of the week ending 11 September, traders increased their net long bets on the 18 commodities futures and options to a 4-month high due to expectations of monetary stimulus in the world. Net positions in gold by managed money went to a 6-month high at 165,724 contracts. Bloomberg data also shows that gold ETP holdings have risen to an all-time high of 2,534.80 tons while platinum ETP holdings have surged because of the labour unrest in South Africa.
The natural question to ask is when will gold price breach the year ago record high of $1,920? While no one can predict the timing, we do know that gold price has typically followed a consolidation pattern before breaking new highs and is firmly supported at $1,520. Central banks especially in the emerging countries are diversifying into gold continuously while the European central banks sold only 5.9 metric tons of gold in 2012 compared to 157 tons in 2009. China and India, the biggest gold consumers in the world continue to view gold as a good investment and inflation hedge.