Gold may edge higher on stimulus hopes: Karvy

Karvy Commodities Broking has come out with its report on gold and silver. According to the research firm, fed is projected to announce a third round of asset purchase, dubbed as quantitative easing. So, with expectation of QE weighing on the dollar, gold is likely to bid high.

Gold is seen trading slightly higher at the Globex. As expected, prices almost touched $1750 yesterday before the Libya outrage rattled market. Asian stocks have also risen for the sixth straight session amid speculation for the Fed stimulus. Going ahead gold is likely to stay strong on anticipation of Fed stimulus which has also stressed the dollar to trade near its four months low. Fed is projected to announce a third round of asset purchase, dubbed as quantitative easing and the Euro got a firm foot against the greenback after a German court backed the Euro area rescue fund. So, with expectation of QE weighing on the dollar, gold is likely to bid high.

However, we need to be cautious as there are arguments favoring No QE-3. For example, above 100% debt/GDP ratio, swelled balance sheet of over $3trillion, debt amount approaching the ceiling of $16.39 trillion. Moreover, with the November election at the edge and talks of a bipartisan deal to reduce fiscal deficit, QE-3 would be at diminishing return for Fed. Hence, amid this fiscal cliff Fed may not be so aggressive like ECB. If so happens, market distress may lead gold for a correction.

Silver futures prices at the early Globex have taken tiny correction ahead of the mostly eyed FOMC meeting later today. We expect silver to recover the paltry loss on the back of strong Asian equities and on anticipation of Fed announcing third round of asset purchase. However, as discussed in gold’s outlook, there is also high probability of Fed refraining from easing. Market therefore may correct during the evening hours. An above 100% debt/GDP ratio, swelled balance sheet of over $3trillion, debt amount approaching the ceiling of $16.39 trillion may keep Fed restrained from easing. Moreover, with the November election at the edge and talks of a bipartisan deal to reduce fiscal deficit, QE-3 would be at diminishing return for Fed. Hence, amid this fiscal cliff Fed may not be so aggressive like ECB. If so happens, market distress may lead silver for a correction. Said so, we expect silver to stay firm till the US opens after which market correction is expected given any devoid of Fed easing.

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