FOMC minutes contained no surprises, and consequently our view on QE3 remains unchanged

After a relatively lacklustre day, gold received a shot in the arm yesterday after the release of the much-anticipated FOMC minutes. Investor hopes of further monetary accommodation were raised by discussions among members concerning policy options available to boost the economy, should it become necessary. The various tools outlined were, a) further quantitative easing, b) maturity extension of the existing bond portfolio and c) lowering of the interest rate on reserves. Further contributing to speculation that September’s meeting could see an announcement of more monetary accommodation, was the decision to extend the meeting to two days.

For us, the FOMC minutes contained no surprises, and consequently our view on QE3 remains unchanged. While the likelihood has increased in recent weeks, we await further evidence on the extent of the weakness in the US economy before making QE3 our base case. To this end, should tomorrow’s ISM manufacturing and Friday’s non-farm payrolls continue to decline, this would most definitely increase the probability of further quantitative easing.

After the initial FOMC induced surge, precious metals have once gain began to track sideways. Asian flows were muted amid Eid al-Fitr celebrations and various other regional holidays in India. This lack of direction has extended into this morning, with participants likely waiting on the sidelines ahead of Friday's non-farm payrolls.

Gold support is at $1,793 and $1,760.