Fed QE3 Supports Gold And Broad ETFs Alike

September 13, 2012

It’s official: Fed launches QE3, and gold prices move higher.

The Federal Reserve delivered on its long-awaited third round of quantitative easing (QE3) Thursday, vowing to buy $40 billion worth of mortgage-backed securities per month, indefinitely, and markets rallied, notably gold.

In what was a somewhat-delayed response to the expected bond-buying program slated to kick off as early as Friday, spot gold prices soared more than 2 percent to cross over the $1765 per ounce mark, hitting its highest levels since the spring, as Hard Assets Investor’s Commodities Analyst Sumit Roy reported.

The $65 billion SPDR Gold Shares (NYSEArca: GLD), the world’s largest bullion ETF, as well as the second-largest ETF by assets, soared 2.03 percent, hitting its highest price since February. Silver's move was even more pronounced. The iShares Silver Trust (NYSEArca: SLV), for example, jumpped 4.35 percent to close at $33.61 a share.

Treasury yields climbed immediately following the announcement, as investors took a breather from piling assets into government bonds as a way to protect themselves from the economic malaise hindering U.S. growth. Yields move inversely to bond prices.

But as the session progressed, yields on the 10-year notes moved lower to end the day at 1.752 percent. How much consumers may benefit isn't clear amid evidence mortgage lenders may not be passing all the lower rates to borrowers. In any case, as recently as late July, 10-year yields had slipped to as low as 1.40 percent.

All in all, the U.S. central bank delivered much of what the market seemed to be anticipating, and it left the door open for more stimulus ahead as it looks to spark growth in the job market and in the economy as a whole.

Among its measures, the Fed also extended its pledge to keep its benchmark overnight interest rate—the federal funds rate—near zero from late 2014 to mid-2015, Roy reported.

“The U.S. central bank has made it clear that it will provide an extremely accommodative monetary backdrop as long as economic growth remains sluggish,” Roy said in his report.

The broad stock market also rallied across the board, posting gains of 1.3 to 1.6 percent, and some of the biggest ETFs in the space were rallying as well. The $106 billion SPDR S&P 500 ETF (NYSEArca: SPY) ended 1.6 higher, while the tech-heavy PowerShares QQQ Trust (NasdaqGM: QQQ) added 1.35 percent.


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