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Gold dips even as Fed's quantitative easing program takes effect

By Investing.com  |  Commodities News  |  Sep 19, 2012 01:16AM GMT  |   1 Comment
 
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Investing.com - Gold prices fell in choppy Asian trading on Wednesday as the euphoria surrounding the Federal Reserve's quantitative recently announced easing program began to wane.

Gold dips even as Fed's quantitative easing program takes effect
U.S. balance of payments data sent the metal falling as well, though the Federal Reserve still guided trading now that the U.S. central bank has begun pumping liquidity into the financial system to pick up the pace of recovery.

On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were down 0.13% at USD1,765.35 a troy ounce, up from a session low of USD1,765.85 and down from a high of USD1,769.95 a troy ounce early during the session.

Gold futures were likely to test support at USD1,753.75 a troy ounce, Monday's low, and resistance at USD1,773.15, Tuesday's high.

The Federal Reserve on Thursday announced plans to buy USD40 billion in mortgage-backed securities a month from banks on an ongoing basis until the U.S. economy improves, a policy measure known as quantitative easing that weakens the dollar by design.

Monetary stimulus tools in the U.S. weaken the dollar to spur recovery, quantitative easing especially, sending gold climbing, in this case, hitting highs not seen since February of this year.

Gold fell after the announcement amid profit-taking and continued to fall on Wednesday.

The yellow metal, however, did see some support as even though anticipatory trading strategies surrounding Fed policies have ended, as investors returned on Wednesday to take up new positions now that the Fed has actually begun injecting liquidity into the banking sector.

Surprising balance of payments data out the U.S. pushed gold down.

In the U.S., official data showed the current account deficit narrowed more than expected in the second quarter, falling to USD117.4 billion from a deficit of USD133.6 billion in the previous quarter.

Analysts were expecting a USD125.5 billion deficit.

A separate report showed that U.S. net purchases of long-term assets rose to USD67.0 billion in July from USD9.3 billion in June, beating expectations for an increase to USD45.3 billion.

Elsewhere on the Comex, silver for December delivery was down 0.48% and trading at USD34.552 a troy ounce, while copper for December delivery was down 0.13% and trading at USD3.788 a pound.








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Peter Palms
Peter Palms Sep 20, 2012 09:55PM GMT
One of the first industries to feel the raw power of "emergency measures" was the home industry. During the early stages of inflation, people were applying their increasingly worthless dollars to pay down their mortgages. That was devastating to the lenders. They were being paid back in dollars that were worth only a fraction of the ones they had lent out. The banking crisis had caused the disappearance of savings and investment capital, so they were unable to issue new loans to replace the old. Besides, people were afraid to sell their homes under such chaotic times and, if they did, very few were willing to buy with interest rates that high. Old loans were being paid off, and new loans were not replacing them. The S&Ls, which in the 1980s had been in trouble because home prices were falling, now were going broke because prices were rising..Congress applied the expected political fix by bailing them out and taking them over. But that did not stop the losses. It merely transferred them to the taxpayers. To put an end to the losses, Congress passed the Housing Fairness and Reform Act (HFRA). It converted all Bancor-denominated contracts to a new unit of value—called the "Fairness Value"— which is determined by the National Average Price Index (NAPI) on Fridays of the preceding week. This has nothing to do with interest rates. It relates to Bancor values. For the purpose of illustration, let us convert Bancors back to dollars. A $50,000 loan on Friday became a $920,000 loan on Monday. Few people could afford the payments. Thousands of angry voters stormed the Capitol building in protest. While the mob shouted obscenities outside, Congress hastily voted to declare a moratorium on all mortgage payments. By the end of the day, no one had to pay anything! The people returned to their homes with satisfaction and gratitude for their wise and generous leaders..That was only an "emergency" measure to be handled on a more sound basis later on. Many months have now passed, and. .Congress has not dared to tamper with the arrangement. The voters would throw them out of office if they tried. Millions of people have been living in their homes at no cost, except for county taxes, which were also beyond the ability of anyone to pay. Following the lead of Congress, the counties also declared a moratorium on their taxes—but not until the federal government agreed to make up their losses under terms of the newly passed Aid to Local Governments Act (ALGA)..Renters are now in the same position, because virtually all rental property has been nationalized, even that which had been totally paid for by their owners. Under HFRA, it is not "fair" for those who are buying their homes to have an advantage over those who are renting. Rent controls made it impossible for apartment owners to keep pace with the rising costs of maintenance and especially their rising taxes. Virtually all rental units have been seized by county governments for back taxes. And since the counties themselves are now dependent on the federal government for most of their revenue, their real estate has been transferred to federal agencies in return for federal aid..All of this was pleasing to the voters who were gratified that their leaders were "doing something" to solve their problems. It gradually became clear, however, that the federal government was now the owner of all their homes and apartments. The reality is that people are living in them only at the pleasure of the government. They can be relocated to other quarters if that is what the government wants..
 
 
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