"We remain convinced that the interest rate outlook, the likelihood of continuing risk aversion because of the Eurozone debt crisis, and strong physical market fundamentals justify exposure to gold," writes commodities analyst Hussein Allidina.
As a base case, Morgan Stanley sees gold rising to $1,750/ounce in Q4 and averageing $1,816/ounce in 2013.
Here's what they wrote in a note to clients this morning:
The adoption of QE3 is positive for gold, and reinforces our long-held bullish view on the metal. In a significant monetary policy development, the Fed’s move was not only supportive of risk assets in general but is likely to undermine the value of the USD, diminishing a key headwind to higher gold prices evident in 1H 2012.
Recent Fed action is a game changer for gold. The size and strength of the recent upside move in gold is reflective of decisively changed perceptions of Fed policy going forward, in our view. Effectively, QE3 for as long as it takes and close to zero interest rates for another three years is, we contend, markedly different from Operation Twist and only two more years of ultra low rates. The Fed also made it clear that it would pursue easy monetary policy “for a considerable time” even after the economy strengthened.
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