Gold Shines After Delay on QE Tapering

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Sept. 19 (Bloomberg) –- Bloomberg’s Andrew Cosgrove discusses the effect of the Fed’s decision not to taper on gold’s rally. He speaks with Julie Hyman on Bloomberg Television's "Street Smart." (Source: Bloomberg)

He had this call recently from goldman sachs that was more bearish on gold prices.

Today, they came out and said, in the short term, gold should do ok.

Now that the fed is not going to be tapering, does that mean this upward trend for gold?


It certainly provides some support for gold.

There is not an end to where the tapering could potentially stop.

The expectation for it to start back in march, then back in june, the chairman said that it could start sometime later this year.

Then trail off into the early part of 2014. and now i think expectations from a medium-term perspective are still expecting some kind of tapering to end in the middle of next year, but there was not any clear guidance given yesterday.

I think the goldman flip-flop ready much reflects the fact that it is still open-ended and you are still adding another $85 billion per month in mbs and treasury purchases.

That is ultimately going to keep real rates hopefully lower as the fed is trying to engineer some kind of economic growth scenario.

Lower in the short-term is what we are looking at.

Difficult to look out further than that.

Inevitably, eventually, the rates are going higher.

Does that mean the gold rally is going to eventually come to an end?

The inverse relationship between gold prices and real interest rates has held for quite some time.

If you look back in history, real rates below 2%, positive 2%, that is, has been conducive to a rise in gold prices.

But more recently, you have had the effect of rising real rates, even though they have been slightly negative depending on which interest rate you use.

There has been some negative price action for gold.

If real rates rise, the economy is improving.

Investors are inclined to own more higher-yielding assets like equities.

That poll slows from gold -- that polls -- that pulls flows from gold.

Does the fed wipe out all the other elements that you have that would normally be influencing gold prices?


You've had the emerging markets, central banks buying, depreciating currency in india and other places.

You have the fed stepping back in.

Now the game has changed a little bit from where we were before.

Andrew cosgrove, joining us from our princeton office.

This text has been automatically generated. It may not be 100% accurate.


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