Gold rallies on call for more stimulus

Prices surge as the president of the Chicago Federal Reserve Bank endorses continued monetary easing.

By TheStreet Staff Aug 30, 2011 10:34AM
Gold © Comstock Images/Jupiterimagesthe street

By Alix Steel, TheStreet

 

Updated at 3:43 p.m. ET


Gold prices soared Tuesday as Chicago Federal Reserve Bank President Charles Evans called for further monetary easing. The rally continued in after-hours trading after the Fed's latest minutes from the Federal Open Market Committee meeting in August showed a growing number of presidents calling for more stimulus.

 

Gold (-GC) for December delivery surged $38.20 to settle at $1,829.80 an ounce at the Comex division of the New York Mercantile Exchange. Gold traded as high as $1,836.40 and as low as $1,786.20, while the spot gold price was popping more than $46, according to Kitco's gold index.

 

Silver (-SI) prices settled up 86 cents at $41.46 an ounce. The U.S. dollar index was up 0.4% at $73.95, while the euro was down 0.4% against the dollar.

 

Gold prices catapulted after Evans said on CNBC that more quantitative easing is necessary. During the interview, Evans called for continued stimulus until the unemployment rate falls to 7% or until inflation surges past 3%. The Fed's threshold is 2% for inflation, and raising the limit for higher prices leaves a lot more breathing room for the Fed to take action. Core inflation is currently 1.6%.

 

Evans does have voting rights, according to the Federal Reserve's website, but his view will have to contend with others that are more worried about inflation than the possibility of a double-dip recession.

 

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At the last policy meeting in early August, Presidents Kocherlakota, Plosser and Fisher all voted against keeping rates low until mid-2013, citing inflation and the fact that a lot of the liquidity the Fed has pumped into the market remains sidelined.


This battle was crystal clear in the Fed's latest FOMC minutes released Tuesday afternoon, where several presidents called for more stimulus immediately. Among the options floated were more asset purchases, increasing the maturity of the Fed's portfolio -- selling short-term securities and buying longer term ones to further promote low interest rates -- or reducing the interest rate the Fed pays on excess reserve balances to give banks an incentive to lend money.


The dissenters, however, blocked any such movement and the Fed compromised with low interest rates until mid-2013. There was also a disagreement as to whether inflation is temporary or more entrenched. Fleeting inflation could strengthen the argument for another round of quantitative easing. The minutes also illustrated that the Fed saw increased downside risks to the economy. Gold rallied another $10 after the FOMC minutes were released at 2 p.m. ET.


This divergence puts a lot of strain on the Fed's next Federal Open Market Committee meeting in late September, but Evans' comments were just what investors needed to pile into gold. More liquidity means higher inflation, which makes gold a better investment than a devalued dollar in the bank.

 

Adding fuel to gold's fire was Standard & Poor's downgrade of eurozone 2011 growth estimates to 1.7% from 1.9%. Germany didn't survive unscathed -- its 2012 economic forecast was slashed to 2% from 2.5%.

 

Some technical traders, however, don't expect gold's rally to last. J.W. Jones, analyst at OptionsTradingSignals.com, is noticing a head and shoulders pattern in the gold chart, which can be a bearish signal.

 

"If you look at the daily chart . . . we do have an interesting pattern on gold . . . (a possible) topping pattern," says Jones. "If I'm an investor, I am not taking gold long until I see a breakout in gold above recent highs." Jones is a long-term bull on gold, calling it a senior currency, but is bearish in the short- to medium-term.


"From a safety standpoint, if I live in the Eurozone and I have all these headwinds . . . my currency could be drastically devalued in a short period of time." Jones warns that if the chart pattern plays out then gold could correct to the $1,490-an-ounce level.

 

Jones isn't the only one noticing this pattern, however, and many traders will be looking to bet against prices to profit from a correction. But if a correction doesn't come and gold prices stay high, those traders will be forced to cover those short positions, which in turn will drive prices higher. Then, Jones says, "we are off to the races."

The physical gold market has been largely ignored of late and could provide hidden support for gold prices. Bloomberg said Tuesday that India could buy 250 tons of gold in the fall during its festival season and Reuters said their channel checks pointed to strong gold demand among Chinese jewelers throughout August, despite record gold prices. China and India are the two largest buyers of gold in the world.

 

Gold mining stocks were rallying with the metal Tuesday. Barrick Gold (ABX) was gaining 1.6% at $51.01, while Newmont Mining (NEM) was rallying 1.9% to $63.30. AngloGold Ashanti (AU) was adding 1% at $44.81, and Agnico-Eagle (AEM) was climbing 1.1% to $69.82.


31Comments
Aug 30, 2011 1:37PM
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QE2 and 3 only helped 20% 0f the economy, Big Banks and Wall Street.  Because the government factors out food and energy prices in calculating inflation to avoid Social Security COLA the real inflation rate of 8% intentionally hidden.   If they want to really stimulate the economy how about giving every TAX PAYING LEGAL CITIZEN household about 50 Grand each.  This would only go to folks who actually pay taxes and not those who get earned income credit.  The money could be used to pay down debt and allow folks to begin spending again.

 

The banks would do business through transactions, the retail vendors who sell more goods and have to restock creating more jobs for inventory replenishment. The worst that could happen in this scenarion is that folks pay off debt and sit on the money; the banks are already sitting on tons of cash from QE3 so what would be different? The cost would be less since the Fed pumped over 12 Trillion dollars into the Banks an Wall Street to get a 600 billion dollar boost in GDP the last 3 years.

 

Charle Evans must need a new sail for his yacht or the domestic help is asking for a raise.   

Aug 30, 2011 1:26PM
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If theses a$$crackers want to use taxpayers money for something, then pick something the taxpayers or the majority can use or needs. Not some jackwagon that has enough money to toss away on investing and portfolios. This $hit gets old real quick.
Aug 30, 2011 1:56PM
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OMG stop it!!! QE3 This!! Just lower the regulations on business owners and lower the tax rates and close the loop holes... Don't need a Ivy League education to figure this out..... Stop devaluing our money....

Aug 30, 2011 2:39PM
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Real inflation which counts everything is already at 3.6 percent. I don't care what they do with juggling money around, it will not creat one permanent job. All another round of QE will do is perhaps raise the stock market, gold, silver, oil, gasoline and groceries will all go up. QE might have worked when we were a manufacturing nation, but not today. The economists need to look at the new normal, not the old normal when making decisions.
Aug 30, 2011 2:34PM
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Typical Liberal crap. We are in debt up to our ears so lets spend some more. I thought the first stimulus was supposed to fix the problem. Apparently not so now they want to do it againl. What a bunch of morans.
Aug 30, 2011 2:48PM
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Here's what the Fed doesn't understand. Banks have tightened lending standards as they should have. Housing will not recover for years and years. People with no money and no jobs won't and can't buy or borrow. The only people who can spend more are those with a little money. However, since the Fed has driven rates to near 0 even those with a stash will not spend because of no income on their savings, CDs, Bonds, etc.  How do I know this? I'm one of those non spenders with a little extra cash invested and damn little income from it.
Aug 30, 2011 2:26PM
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Isn't it Obummer that claimed spending aon the "CHINA Credit Card" was un-american? Yet, this group of socialists wants to spend more money we dont have and cant afford.

 

Thats like saying, we cant afford our bills this month, so lets gat a new wardrobe and a flat screen TV....

 

The stimulus is an attempt to buy the election. Ease the sufffering with smoke and mirrors; then after the election, reality will set in again. TYhis time, you won't even have CHANGE left in your pocket!

Aug 30, 2011 2:31PM
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Once again, the stimulus benefits the haves and does nothing to help the have nots. Yeah, trickle down economics. Just by the time it reaches the have nots, there is nothing left. Good ole government. Help the largest corporations and the wealthiest!
Aug 30, 2011 2:58PM
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It Seems our Government Wants a Revolution.

They do NOTHING For the American People, They Do EVERYTHING For Big Money.

The Feds can come all they want to arrest me for non-payment of Taxes, I say BFD, You Can't get Blood out of a Turnip and Locking Me Up? HAH!, The American People are Already in Prison and I could Use a Cushy Place to Vacation.  I know For a FACT that I will NEVER Vote for a Incumbent again.   Time to Sh*t-Can this Government and Start over Fresh with the ORIGINAL Constitution without all these ****-kissing Admendments.

Aug 30, 2011 3:10PM
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Not more free money, it's jobs we need. Not all of us have a college degree, so we are in compitition with the $5 dollar an hour illegals. When government holds business owners responsible for hiring legal American citizens, pay levels will increase and Americans will prosper. When Americans prosper the country will be strong.
Aug 30, 2011 2:13PM
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I've got an idea!

 

Let's reelect Prez-0!
OBAMA! OBAMA! HE'S OUR MAN!

IF HE CAN'T DO IT, NO ONE CAN!

 

...sorry folks, he escaped from his padded cell and got on a computer.

He's now sedated & resting comfortably

Aug 30, 2011 3:10PM
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These educated morons like the Fed chief in Chicago really just don't get it.  This country has a structural problem and until that structural problem is fixed, we ain't getting out of this mess.
Aug 30, 2011 3:30PM
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Time to come to grips fellow dooped.  It isn't that they do not understand or know what they are doing, Nobody is this stupid, they know exactly what there doing and it is having their desired effect.  The world elitists, central and world banks, Rothchilds, Bilderbergs, IMF, WTO, etc. etc. are all in on this insanity.  America is one of the last truly free countries with true sovereignty and the only way to make us fall in line for the "New World Order" is to break us economically, socially, and spiritually.  One way or another, they are going to fold this country into the new socialist world system that is part 'capitalism with tremendous oversight and regulation'.  What we have to decide is whether or not we will continue to be cowed like sheeple, or collectively tell them to F- themselves. 

I do not know what the perfect plan is, however, as someone stated "Evil flourishes when good men and (women) do nothing.  If you think these elections are real, then you need to do a little more research and follow the money trail.  Bush senior was the first to mention openely many times; "the new world order".  The elite put in office whom they choose, and just like Hollywood, sports, and all forms of entertainment, it is ALL just a distraction.  While we wade through our little lives, they continue to bring to fruition their devious plans of world order and domination.  If you do not believe me, just start searching for the truth.  It is all around us and easy to find.  God Bless and help us all.

Aug 30, 2011 2:48PM
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Everyone agrees that more jobs are needed.  Increase the demand for goods and services and the need for jobs increases.  How?  Disposable income has to increase and NOT by giving away more money.  What if the most important commodity (oil) was only $70 a barrel?  Costs of production and distribution would be less, goods would be would be cheaper and people would have more money to spend.  Duh...
Aug 30, 2011 4:30PM
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Eat1.org,

 

Why do you say America is "truly free"?  In what way are we, the "citizens", nope, subjects, free? 

 

Government rules their subjects in America today.  American citizens do not rule their govt.  Govt is free of the control of its subjects to do what it wants.  The American subjects are forced to do what govt wants them to do. 

 

That is NOT freedom.

Aug 30, 2011 3:03PM
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Just yesterday on this site, msnbc was going with the lame story that gold was too high and the stock market was making a rebound. I wrote that it was a sucker bet. Sure enough, with just the mention of more wastful stimulus spending by this idiot N chief, gold skyrockets. At this rate there won't be another stupid democrit left in the country after the next election. (except for the eastern blueblood elites) They will get what they deserve. 
Aug 30, 2011 3:01PM
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djc, yes. we all know that Bush started this stimulus crap. What's the point? Bush sucked. Why do people seem to think that Bush doing something stupid makes it ok for Obama to continue, and build upon Bush's mistakes?

Only an idiot would think "Bush sucked" is any kind of defense for "Obama sucks". The two are not mutually exclusive.

Aug 30, 2011 4:33PM
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The Fed / Obama/ Democrat idea of flooding the market with dollars is killing people who have saved and rely on interest. (Retired People).

Inflation is already 2.7%.

Growth is less than that and interest is near zero.

And their answer is more of the same?

Aug 30, 2011 4:01PM
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QE3, QE4, QE5! Keep it coming. Things will not get better until they get worse. We need real change, and it needs to be big. The only way that will happen if the current system collapses.

Everybody, apply for every welfare program. Borrow all the funny money you can and spend it on durable goods that can't be repossessed.

Bring it all down! SPEND SPEND SPEND but refuse to raise taxes. Let the left destroy the international monetary system- it sux anyway. Raise the debt ceiling as high as the Left wants, let them borrow $10 Trillion more, why not? It's all funny money anyway.

What we can't let happen is a slow creeping erosion resulting in a "brown out" of the economy and a frog in the pot death for out ancient liberties.

 

I am pro-Doom and you should be too!

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