Gold could approach record high if Fed pumps in more money

Bangkok (The Nation/ANN) - The price of gold could return to the record high of US$1,920 (about 60,000 baht) per ounce this year if the US Federal Reserve today decides to inject more liquidity into the economy under a third round of quantitative easing, according to some global traders and brokers.

Meanwhile, Barclays Research warned that Thailand and other Asian countries would be hit by the economic downturn in Europe.

Gold prices are likely to soar to a new high, exceeding $1,920 per ounce or 26,700-27,750 per baht weight, by year-end, Pawan Nawawattanasub, vice president of YLG Bullion International, said yesterday.

Even if there is no more quantitative easing in the US, gold will remain high at above $1,730 per ounce, or 1,730-1,850 per baht weight, she said.

The investment return in gold futures in the first eight months of the year was 7.98 per cent, a level that is expected to rise to 10 per cent for the full year, the same as last year's return, she said.

Gold futures trading has doubled, soaring from 487,000 contracts last year to 961,000 contracts already this year, Pawan said.

Tanasin Gleeblumjeak, managing director of Ausiris Futures, said the price of gold may not however exceed $1,800 per ounce this year, due to profit-taking by traders.

The lowest price over the past two months was $1,600, and the price of the precious metal is likely to go up in the short run, he said.

Kasikorn Researh Centre believes the US Federal Reserve will take action by injecting more liquidity into the US economy and maintaining a low policy interest rate beyond 2014.

The Fed will take action due to the stubbornly high unemployment rate of 8.1 per cent in the US, the research house said, adding that the central bank is likely to purchase mortgage-backed securities in order to boost the real-estate sector.

The Fed will also announce that it is maintaining a low policy rate for much longer than the previous target of late 2014. An extended period of low interest rates would help companies to plan their investment and could create more jobs, said Kasikorn Research Centre.

Sompop Manarungsan, president of the Panyapiwat Institute of Technology, said that the Fed may not, however, take stimulus action unless the Constitutional Court in Germany rules today against the German government's backing for the euro zone's new bail-out fund, the European Stability Mechanism.

If the court rules that the German government's support for the measure violates German law, it will send financial markets in Europe into turmoil, which will also affect the US market, he said. If that were to happen, the Fed would step in to shore up the market, he added.

Meanwhile, Barclays Research said emerging Asian economies would not be immune from the European downturn.

Even though the European Central Bank has announced plans to purchase government bonds of troubled euro-zone economies, an abrupt downturn in growth cannot be discounted.

The impact on Asia would be significant, with growth falling by 1.5 percentage points in the first half of next year, according to Barclays.

Growth in Thailand, Taiwan and South Korea could fall by about 3 percentage points in the same period, while smaller or more open economies like Singapore and Malaysia could be hardest hit, with growth down by 4.8 and 4 percentage points, respectively.

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