Gold surges as Chicago Fed chief suggests no taper until 2014 - Wealth Managers

Minneapolis branch head goes even further, vows "doing whatever it takes"

Gold surged about 1% early Friday, topping $1,345, as investors weighed fresh remarks from Federal Reserveofficials suggesting that bullion-friendly stimulus will keep rolling on for a while. The looming threat of a government shutdown also served as a supportive backdrop and sent all three major stock indexes into the red.

"People are concerned about the political situation in the U.S. and the prospect of another fiscal cliff," said Simon Weeks atScotiaMocatta. "That's driving [gold] at the moment."

"Support is obviously coming from the U.S., where lawmakers are once again playing Russian roulette with the budget and debt limit," agreed Ole Hansen of Saxo Bank.
Recovery facing "massive headwinds" 
After a speech in Oslo, Charles Evans, president of theChicago Federal Reserve Bank, said there is "a decent chance" the Fed would have enough confidence in a strong economy to begin to pull back, or taper, bond buys at one of two remaining meetings this year: in late October or December. "But it also could be at the January meeting," he said -- in one of the first suggestions from a senior Fed official that a taper could be delayed into 2014.

Evans continued to stress the Fed's data-dependent, wait-and-see strategy. The bank's Sept, 18 decision not to taper "was very much in keeping with our overall intention in the program that it's open-ended, that we would be conditioning on the data, and a little more data to assess the sustainability of output growth I think is very helpful," he said. "We need to see further developments of the positive variety for the economy to have that added confidence. It wouldn't surprise me if we go a little bit longer" with QE because of "massive headwinds" hindering the recovery.
Fed will do "whatever it takes"
Evans' comments followed an ultra-dovish speech by Minneapolis Fed head Narayana Kocherlakota on Thursday:  
"Doing whatever it takes in the next few years will mean something different. It will mean that the [Fed's Federal Open Market Committee, or FOMC] is willing to continue to use the unconventional monetary policy tools that it has employed in the past few years. Indeed, it will mean that the FOMC is willing to use any of its congressionally authorized tools to achieve the goal of higher employment, no matter how unconventional those tools might be.

"Moreover, doing whatever it takes will mean keeping a historically unusual amount of monetary stimulus in place -- and possibly providing more stimulus -- even as: Interest rates remain near historic lows. Economic growth rises above historical averages. Per capita employment begins to rise appreciably. Asset prices rise to unusually high levels, leading to concerns about 'bubbles.' The medium-term inflation outlook rises temporarily above 2 percent. It may not be easy to stick to this path. But I anticipate that the benefits of doing so, in terms of employment gains, will be significant."

"I do not think the Fed will taper this year"
Digesting public statements such as these, professional investors and analysts are increasingly confident in voicing predictions that the Fed won't taper this year. Bond guruJeffrey Gundlach of DoubleLine Funds said Thursday that he doesn't expect the Fed to begin tapering its bond purchases until a new chair is in place next year, likely current Vice Chairwoman Janet Yellen.
Grant's Interest Rate Observer founder and gold bull Jim Grant concurred: "No, I do not think the Fed will taper this year." 
India's gold-buying momentum rising
Meanwhile, India is just getting back into the gold groove. Its main festival season starts soon after Oct. 4, then peaks withDiwali, which is on Nov. 3 this year.

"India's gold imports are expected to pick up in October after a three-month slump as festival-season sales kick in, and because of a government push to clear shipments that were stuck because of confusion over new import rules," reportedThe Wall Street Journal. "Volumes have already started rising with government officials clearing this week imports which were stuck since August."

Imports are likely to average 75-80 tons a month during October-December, said Harmesh Arora of the Bombay Bullion Association. "You will find the momentum picking up once the inauspicious period ends on Oct. 4," he said.
BofAML cuts 2014 target but remains long-term bull
JPMorgan recently issued a bullish forecast for gold, but not all big firms are on the same page. Bank of America Merrill Lynch cut its 2014 forecast by 17.2% to $1,294 an ounce. Of course, it's prediction is based on the Fed tapering its stimulus program -- which is very much up in the air, given the comments above from Evans.

"Gold prices have stabilized, and they could remain supported as the U.S. reaches the debt ceiling. However, we believe the focus of investors remains firmly on a gradual normalization of U.S. monetary policy. Hence, our base case anticipates sustained headwinds to gold prices," wrote BofA analysts.
"Pronounced" jewelry demand to emerge
Despite the forecast reductions, though, the BofA commodities analysts (led by metals strategist Michael Widmer) say they "remain longer-term bulls" on gold. By 2016 they expect the bull market to make a comeback, largely on rising incomes in emerging markets like China:
"Looking further out, we see further potential upside to gold prices. Our models show, for instance, that the importance of investors as marginal buyers could subside gradually. ... This trend is heavily influenced by rising affluence in emerging markets, which should result in more spending on luxury goods like jewelry.

"In fact, we estimate that jewelry demand may become so pronounced by 2016 that prices could trade above $1,500/oz even if investors were net sellers. Looking at sensitivities from a different angle, we estimate investors would need to buy merely 600t of gold to sustain prices at $2,000/oz by 2016, compared to non-commercial purchases of 1,798t in 2012."
"We could see gold at $2,500"
Gijsbert Groenewegen of Silver Arrow Capital Management remains ultra-bullish in the near term: "Like the Chinese, the Indians are buying more and more gold ... as a hedge against inflation and the weak economy. Comexinventories are being depleted. Central banks want their gold repatriated (Germany, Poland, Finland)."

Further declines in gold and silver "will offer the investment of a lifetime because I don't exclude that we could see gold at $2,500 and silver at $100 next year," Groenewegen said. "Most investment options are looking to be exhausted. We are entering the phase of preserving capital." 

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