FED TO PROVIDE INTEREST RATE EXPECTATIONS

January 25, 2012

Gold eased as the euro fell ahead of a policy statement from the Fed, with the metal trading at $1654.10 per ounce at 6:42 a.m. Pacific Time on the New York Spot Market with silver at $31.79 per ounce. European finance ministers and Greece's private creditors have not yet agreed to debt restructuring terms, weighing on the region's common currency.

The Federal Open Markets Committee policy statement today for the first time allows the voting members of the committee to individually express their interest-rate outlooks. According to James Steel, metals analyst at HSBC Securities, a majority of the Fed members are expected to choose 2014 as the first year for a rate increase. "Low interest rates are theoretically supportive of gold prices, but this may already be largely factored into current gold prices," he said.

"It's all about the dollar," said Nick Trevethan, an analyst at Australia & New Zealand Banking Group Ltd. "This is the first time the Federal Open Market Committee is giving its forecast, and I think people are keen to see what it looks like." The Fed kept rates at historically low levels last month and stated that economic conditions may warrant "exceptionally low" rates "at least" through mid-2013.

According to Nic Brown, head of commodities research at Natixis, "despite all the crisis engulfing Europe last year, it is a U.S. fiscal mini-crisis over the budget ceiling that virtually gave the biggest boost to gold prices. So if you're looking for potential upside in gold and other precious metals this year, you probably need to look to the U.S."

HSBC's Jim Steel discussed Asian markets as well, noting that "China and Vietnam are essentially out of the physical markets due to the Lunar New Year celebrations. If gold can hold steady with one of its major physical markets essentially on holiday, then we would regard that as an indication of underlying strength."

(Sources: "Gold prices edge up, capped by dollar gains," MarketWatch, January 25, 2011; "Gold Retreats for a Second Day as Asian Holidays Erode Physical Demand," Bloomberg, January 25, 2012; "PRECIOUS-Gold falls for a second day ahead of Fed," Reuters, January 25, 2012)

†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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