Gold Market Factoring In Potential Fed QE But Not Aggressively Yet:UBS

UBS says the recent rise in gold suggests that expectations for more Federal Reserve quantitative easing are being priced in, yet the market has not been overly aggressive, wary of “getting too far ahead of itself in terms of QE expectations.” Traders later Wednesday will be scrutinizing minutes of the last Federal Open Market Committee meeting for clues on whether to expect further accommodation. At the end of the month, the Fed holds its annual Jackson Hole, Wyo., symposium, which officials used to signal QE two years ago. Then the FOMC meets again next month. “The UBS house view is for an even chance of Fed policy easing up ahead, and our colleagues in economics expect that any announcement is likely going to be made during the September FOMC meeting, two weeks after Jackson Hole,” UBS says. “This view is also widely held in the market. Although hints may be offered next week, the fact that any concrete policy announcement is probably still a few weeks away suggests that many expectation-based trades are likely being held off for now, especially ahead of the release of the FOMC minutes.” Market expectations are important since they can determine how the gold market will react after the Fed events, UBS says. Two years ago, expectations were low, thus gold shot up 2% a week after the Jackson Hole symposium. However, last year, expectations were high for more easing, thus gold fell back 1% a week after Jackson Hole when Federal Reserve Chairman Ben Bernanke “underwhelmed” the market, UBS points out.