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Gold Moves Toward Six Month High,Then Retreats

by Michael Locklear

Gold started out the day pushing towards a six-month high as the spot price rose to $1779.10 before retreating to the current spot price of $1769.70. The price rose after the announcement of the Bank of Japan that it would join the other central banks in its own round of monetary easing. Prices later retreated as oil prices moved lower and the dollar gained strength. Gold investors see every move towards monetary easing as a positive signal to move more money into gold.

In previous weeks the announcements concerning new monetary policies from the European Central Bank and the U. S. Federal Reserve have prompted a significant rally in both gold prices and the stock market. The perfect opportunity for investing in gold is created by the pressure on long-term interest rates, concerns over the stability of the dollar and investor fears over what they believe to be clear indications that rising inflation is just around the next bend.

Anne-Laure Tremblay an analyst with BNP Paribas said:

Current monetary easing by central banks is warranted by weak economic growth and subdued inflationary pressures in developed economies. This trend is likely to continue until we see a notable improvement in economic growth trends. It seems that the stars are now aligned for gold to move higher. The next hurdle to overcome will be the $1800 announced level, which we expect to be breached decisively in the fourth quarter.

HSBC analyst James Steel said:

While we expect QE3 to be supportive of gold prices, much will depend on how QE3 plays out in the fixed income markets and how it impacts the euro- dollar.

He went on to say that he was surprised at gold’s performance after the recent announcement by the Federal Reserve ended the fact that both the euro and platinum prices are weak and crude oil prices are down. Some analysts had predicted that gold would not continue to increase in price during this round of monetary easing as it had as a result of previous actions by the Fed.

Gold market investors view the Fed’s focus on stabilizing the US economy and bringing down unemployment as a perfect indication for further investment in gold, since they expect rising inflation as a result of these actions. Whether or not gold will return to its previous all-time high reached last year will depend on how things shake out in the U. S. Economic forecasts. Some investors still expect that gold prices will reach $2000 per ounce in the near future.

As gold investors are receiving all the positive signals they have hoped-for from the actions by the central banks and other factors within the economy, gold ETF’s continued to rise in their popularity and have been strong recently with EFT holdings rising to 73.68 million ounces. Now investors are looking toward what will happen with the so-called fiscal cliff as they watch for actions from the U.S. Congress and the President of the United States to head off what many believe is an imminent disaster. As always only time will tell. We are all anxiously waiting to see the next installment of this exciting economic adventure.

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