Gold, Silver, Aluminum 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.


GRONINGEN (MINEWEB) -
According to a note out from Standard Bank
on Friday, gold, silver and aluminum 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 aluminum 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 initial 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.”

[The Bank noted an earlier position:
"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." The Bank
should address the possibility of quantitative easing becoming
perpetual. Then gold price expectations would be much, much higher.]

Geoff Candy
September 17, 2012
www.mineweb.com