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Analyst: QE3 Will Cause Gold to Rise to $2,400


"Since the Roman Empire, all fiat currencies have ended poorly."

[Editor’s note: the following is a cross post that originally appeared on]:

In one of the most bullish gold calls since the Federal Reserve announced a new round of easing last week, one strategist sees a 36 percent jump in the metal's price to $2,400 an ounce, by the end of 2014.

"The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December," wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.

"Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy," Blanch added. "In our view, this is unlikely to happen until the end of 2014."

Last week, the Federal Reserve announced its third round of stimulus since the financial crisis, saying it would buy $40 billion in mortgage-backed securities each month.

The Fed used open-ended language in describing how long so-called QE3 would last, saying in its statement it would continue these purchases — and possibly employ other methods — until the outlook for the labor market improves substantially.

"The combination of open-ended MBS [mortgage-backed securities] purchases and the possibility of additional Treasury bond purchases starting in December could further lift gold prices by adding over $2 trillion to the Fed’s balance sheet over the next two years," explained Blanch in his report entitled "Gold Under QE-Infiniti."

Gold is up two percent since the Fed’s statement as others besides Bank of America pile into the metal on fear these actions may spark inflation and leave the metal as the only store of value in a world of paper currencies. Morgan Stanley also upped its gold forecast today, saying the metal would average about $1,800 an ounce next year.

"Since the Roman Empire, all fiat currencies have ended poorly," said Guy Adami, managing director of and a long-time bullion bull. “With that in mind, all roads lead to gold.”



© 2012, John Melloy

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