Gold, silver and equities may turn bearish as QE2 ends

LONDON (Commodity Online): With the Bernanke sponsored $600bn QE2 life support expiring in June, analysts feel that gold as an asset class would be less attractive!

This is surprising as investors hold the notion that the termination of QE2 would add to the global uncertainty there by driving up gold prices further. Extrapolative predictions by some analysts pegged gold prices to touch $2000.

But according to a recent report in the Financial Times, the withdrawal of QE 2 would bring about a condition which may prompt Ben Bernanke to raise the interest rates! This would make other asset classes like bonds to look more attractive, the FT report argues.

This can make a dent on gold prices and can take it downward to as low as $1400. At that point, the commodity is supposed to find a support level. Robust demand from growth markets like India and China would continue to propel gold, analysts believe. The gold rally, thus would take some much-needed rest.

Foreseeing this, several investors have given up their investments in gold to the tune of 2.5m ounces through ETFs in January and February. Several hedge funds have also offloaded their physical gold assets in the market.

Legendary investor George Soros is one of the investors who has been speaking about the gold bubble waiting to pop. He had recently given up his 99% stakes in SPDR Gold Fund.

But certain investors long on gold are supposed to hold their positions. John Paulson, for instance, has retained his $4.4bn assets in SPDR Gold Shares exchange-traded funds.

GFMS, the precious metal consultancy is also bullish on gold in the long term and are of the opinion that gold would rally past $1600 this year itself.

When it comes to silver prices, being an industrial commodity, the anticipated surge in bank rates would take silver down. Companies may stop borrowing funds and would halt expansion or scale-ups denting demand for white metal.

The QE2, which has brought down dollar, would however strengthen the reserve currency on the scheme’s expiry. This would weigh on the commodity prices and the perceived commodity rally may slow down.

source:http://www.commodityonline.com/news/Gold-silver-and-equities-may-turn-bearish-as-QE2-ends-39245-3-1.html