Gold market reaction to FED QE2: Extremely volatile

"Buy on rumours, sell on news" style

http://www.kitco.com/reports/KitcoNews20101103_fomc.html

“It’s been extremely volatile,” said Frank Lesh, broker and futures analyst with FuturePath Trading. “We shot up to $1,349, dropped down to a new low on the day at $1,325.50 and now here we are at $1,341 (as of when he spoke). There were bargain hunters coming in and probably some short covering.”

However, he commented, the market did not fall enough to force long-term players to exit long positions. The December gold futures remain above support at last week’s low at $1,318.60, he said.

Long-term supportive?

Overall, however, analysts are describing the Fed statement as supportive for gold in the longer term.

As a result, investors are looking at gold as the “currency of choice,” Daly continued. “Overall, it’s very dollar bearish and gold friendly.”

Gold tends to rise when the greenback weakens as investors seek the metal as an alternative currency, and also since a weaker dollar makes all commodities cheaper in other currencies and thus can help demand.

Lesh also described the Fed statement a negative influence for the dollar and thus supportive for gold.

“It is extra stimulus, a little bit more than expected” Lesh said. “They also left open that they can do more, if necessary. All of this really doesn’t say much for the dollar going forward.

“It looks like currency volatility is expected to continue. Fiscal irresponsibility on the part of most Western nations is still out there. All of the factors driving gold are still there. I still expect higher prices.”