'Scope for Gold at $2,400' on US Monetary Policy

The spot gold price climbed back above $1,715 an ounce Wednesday morning, around ten dollars up from last week's close, as stocks, commodities and the euro also edged higher and US Treasuries dipped, ahead of today's Federal Reserve policy announcement. 

Silver meantime edged above $33.20 an ounce this morning, a slight gain on where it started the week. 

Several analysts have predicted the Fed will today announce open-ended Treasury bond purchases worth $45 billion a month. In September the Fed announced it will buy $40 billion of mortgage-backed securities a month, while its maturity extension program Operation Twist, through which it sells shorter-dated bonds to buy longer-dated ones, ends this month. 

"We have a six-month [gold price] target of $2,000 an ounce, but see scope as well for prices to rise to $2,400 an ounce by the end of 2014," says the 2013 outlook from Bank of America Merrill Lynch metals strategists this morning, in contrast with the Goldman Sachs gold forecast for 2014 made last week. 

"These targets reflect our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist in December 2012." 

"Quite clearly the US wants a lower dollar and its monetary policy is certainly geared to deliver it," says currency strategist Steve Barrow at Standard Bank in a note this morning. 

"If policy is geared to weaken the dollar even more, through further monetary easing today, it won't stop any short-term safe haven demand for the Dollar that might arise out of fiscal cliff, but it could impair the ability of the dollar to continue any such strength into the longer term." 

President Obama and House of Representatives Speaker John Boehner exchanged new proposals on how to reduce the US deficit yesterday, press reports says, as part of ongoing negotiations aimed at avoiding the so-called fiscal cliff of tax rises and spending cuts currently due at the end of the month unless Congress passes legislation to prevent them. 

Obama has reduced his request for additional tax revenue over the next decade from $1.6 trillion to $1.4 trillion, Associated Press reports, but has not changed his call for top income tax rates to be raised. 

"I'm pretty confident that Republicans would not hold middle-class taxes hostage to trying to protect tax cuts for high-income individuals," Obama told ABC News Tuesday. 

The two sides are yet to reach an agreement. 

In Toronto meantime Bank of Canada governor Mark Carney, who takes over at the Bank of England next year, suggested Tuesday that central banks might consider adopting nominal gross domestic product targets as an alternative to inflation targeting. 

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