Monday, September 17, 2012

Gold, silver, aluminium to benefit most from QE3 - Standard Bank

The bank says, that the three metals, along with Brent Crude, are likely to benefit most from the latest round of quantitative easing.

According to a note out from Standard Bank on Friday, gold, silver and aluminium are the three metals likely to benefit most from the Fed's announcement last week of QE3.

"Given that QE is initially purely a monetary phenomenon," the bank writes, "with a possible real economic effect only later, we note that price reaction may differ from what one would expect, looking purely at commodity specific fundamentals."

Having said that, however, the bank says, following an extensive analysis of the periods following the announcement of QE1 and QE2 respectively, "Our analysis shows that gold, silver, Brent and aluminium are likely to move higher with the most certainty or highest confidence."

Before Ben Bernanke's announcement on behalf of the FOMC, Standard Bank wrote, "Should the Fed expand its balance sheet by a further $1.3tr, it would lift our fair value estimate for gold to around $1,900."

Adding once the announcement was made, "even from current levels of gold at $1,770, we still see substantial upside for the metal."

Another important thing to note, Standard Bank says is that physical demand for the metal remained robust even when prices shot above $1,700.

"Even at prices above $1,700, looking at our Gold Physical Flow Index (GFPI) it appeared as though physical demand had remained relatively robust, albeit at levels below that seen in 2011. The physical market continues to be well supported by the Far East, although Indian buying has also returned and remained fairly steady, even after the push above $1,700."

The bank explains that part of the reason for this is that, often, after an intial slowdown, the physical market adjusts to the higher prices and resumes buying and, more importantly at this stage, "the adjustment has been further facilitated by the need for physical gold as we enter the Indian wedding season."

Thus, the bank says, "We do expect physical demand to weaken, in light of Thursday's rapid move. However, the aforementioned factors are still relevant and after a period of adjustment, we still feel that the physical gold market should remain a point of mild support rather than resistance (or, at worst, neutral). We maintain our belief that gold will trade towards $1,900 in Q4:12."