October 17, 2012 – Gold got a boost from news that Moody’s has affirmed the investment grade status for Spain and the expectation from analysts that Spain will soon be seeking financial aid from the European Union. The euro reaching a one-month high as the dollar fell after Moody’s announcement also helped to fuel increases in gold prices.
Investor confidence remains shaken as the outlook for further significant increases in gold prices come into question as a result of positive economic numbers from the U. S. and the duration of the Fed’s new monetary easing policy now appears to be unpredictable. Last month the US Federal Reserve announced its third round of quantitative easing and promised to infuse $40 billion per month to shore up the US real estate market and to address persistently high unemployment numbers. Since this announcement unemployment numbers have dropped and housing starts have increased giving gold investors reasons to be cautious and triggering what appears to be a significant correction in the market.
Recent drops in gold prices are reflective of fears in the market that QE3 may soon come to an end and will not continue indefinitely as most analysts had believed. Last month’s announcement by the Fed was expected to significantly benefit bullion investment since interest rates would be kept low and additional monetary infusion fueled the fear of imminent inflation.
As investors continue to watch economic developments in Europe and await the outcome of the summit this Thursday of leaders of the European Union to see what direction their economy will take next gold prices are anticipated to remain sluggish in the short-term. Generally Moody’s decision on Spain is seen to be positive for the gold market, however analysts believe investors will continue to be cautious at least until after the outcome of this week’s summit is known.
Most analysts agree that the outlook for increased gold prices remains positive over the next several months. Investors will also be watching China as its new domestic production numbers come out this week. It is still expected that there will be continued caution in the gold market as the present correction continues. Some analysts believe that the market needs to clean up some of the weaker elements among investors before the price of gold will be able to continue its previous price growth.
Investments in exchange traded funds continues to remain strong as bullish investors are putting more money into the fund’s than more bearish investors are taking out. Yesterday 28,000 ounces flowed into New York’s Comex Gold Trust while only 11,500 ounces flowed out.
Today’s spot price for gold is at $1752.60. The market is waiting to see what direction investors will go after new economic data from China comes out tomorrow. The gold market may receive additional stimulation from the summit of European leaders this week as well. Currently the market is in the process of a correction in its direction in the future is anybody’s guess.