Gold analysts are the most bullish in three weeks after the Federal Reserve’s surprise decision not to taper stimulus increased demand for bullion as a hedge against accelerating inflation and currency debasement.
Sixteen analysts surveyed by Bloomberg expect prices to rise next week, five were bearish and five neutral. Gold jumped 4.1% (COMEX:GCZ13) on Sept. 18, the most in 15 months, after the U.S. central bank said it wants more evidence of an economic recovery before slowing its $85 billion-a-month of bond buying.
Gold is set for the first annual drop in 13 years as some investors lose faith in the metal as a store of value amid signs economies are strengthening. Fed Chairman Ben S. Bernanke surprised analysts who predicted a $5 billion cut, saying he was concerned that market interest rates, driven higher by his own suggestion he would scale back stimulus, would curb growth. As gold surged, the dollar slumped to a seven-month low.
“The Fed has realized that any attempt to reduce or eliminate quantitative easing will lead to a surge in interest rates,” said Jeff Sica, who helps oversee more than $1 billion as the president of Sica Wealth Management in Morristown, New Jersey. “There will be ongoing currency devaluation both in the U.S. and around the world. I anticipate significant fundamental strength in the price of gold in the near term.”
The metal fell 19% to $1,353.45 an ounce in London this year after slipping into a bear market in April. Prices rebounded as much as 6.5% since reaching a five-week low on Sept. 18. The Standard & Poor’s GSCI gauge of 24 commodities fell 0.7% this year and the MSCI All-Country World Index of equities gained 15%. The Bloomberg U.S. Treasury Bond Index lost 3%.
Bullion rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by buying debt, increasing concern about currency debasement. Bernanke said there is no fixed schedule for tapering and a statement from the Fed signaled interest rates will stay near zero as long as unemployment remains above 6.5% and inflation forecasts don’t exceed 2.5%.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, dropped 2.5% in the past two weeks, reaching the lowest since Feb. 19. Gold moved in opposite directions to the dollar in 11 of the previous 12 quarters. Global equities reached the highest in five years yesterday.