Among the most bullish predictions for Gold Prices following the Fed’s announcement of another round of easing in the second week of September was by a BofA strategist, who expects the precious metal’s price to surge 36% by end-2014 to reach $2,400 per ounce.
Bank of America Merrill Lynch’s investment strategist Francisco Blanch said, “The new target reflects 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 this coming December.”
“Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy,” Blanch wrote, adding that this was unlikely until the latter half of 2014.
In the second week of September, the Fed declared the third round of stimulus since the financial meltdown, announcing its intention to purchase to invest a whopping $40 billion each month in mortgage-backed securities.
The Fed did not give too much clarity on the duration of QE3, while mentioning that it would continue to make these purchases, along with employing other methods, till the prospects of the labor market improved significantly.
In his report Gold Under QE-Infiniti, Blanch explained, “The combination of open-ended MBS purchases and the possibility of additional Treasury bond purchases starting in December could further lift gold prices by adding over $2 trillion to the Fed’s balance sheet over the next two years.”
The price of the precious metal rose on the Fed’s statement, with many of the major banks buying gold on inflation-related fears. Inflation usually pushes investments into gold, with paper currencies losing their value. Morgan Stanley raised its gold outlook, saying that the precious metal would average around $1,800 per ounce in 2013.
StockMonster.com’s managing director Guy Adami commented, “Since the Roman Empire, all fiat currencies have ended poorly. With that in mind, all roads lead to gold.” In the end that will definitely affect gold prices.