FOMC announces extension of QE3 and confirms its commitment to lower unemployment. The Fed confirmed that it will be replacing “operation twist” with $45b of monthly purchases of longer-dated treasuries from January 2013 (in addition to the $40bn of MBS currently purchased every month). Although the move was already largely priced into precious metals, the Fed’s actions are significant as they will see balance sheet expansion (whereas operation twist simply changed the maturity of existing assets). Importantly, the Fed has made its ultra-accommodative policy conditional on unemployment remaining above 6.5% and inflation projections remaining no more than 2.5%, providing substantial leeway for continued expansionary policy.
More aggressive action from the Bank of Japan to come in 2013. The victory of Abe of the LDP in last week’s elections is likely to see more aggressive fiscal and monetary policy from Japan. Haven asset buying could follow, which would benefit precious metals, particularly gold.
European car sales weigh negatively on platinum demand. European car sales fell 10% in November, bringing European Union car registrations to a 19-year low. The euro area which has been in recession since Q3 2012 and is saddled with structural debt problems is struggling to lift demand for consumer durables. Demand for platinum used in diesel autocatalysts is likely to continue to suffer.
Key events to watch this week: US fiscal negotiations. With relatively little economic data out this week, investor focus will remain on US budgetary discussions. The Bank of Japan will meet this week, but it is unlikely to be influenced by the LDP win at this early stage.