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Will Gold Prices Wait On News About Quantitative Easing?

by Michael Locklear

August 27, 2012 – Gold is positioned to rise to the highest it’s been in two years as new expectations for more economic stimulus from China and the United States fuels the demand for gold as a hedge against the rise in inflation if the predicted monetary influx should occur. Bloomberg is reporting that gold could reach a height of $1800 per ounce if this trend in the market now continues until the end of the year.

US trading early Monday as gold futures steady or slightly lower after last week’s dramatic rise in precious metal prices. Overnight gold did move a bit higher to $1671.50 an ounce. In view of the London market being closed today for a holiday and investors and traders awaiting the upcoming Federal Reserve meeting in Jackson Hole, Wyoming and the European Central Bank meeting on September 6 the trading today was a little slow to start.

The US Federal Reserve Chairman Ben Bernanke will speak on Friday at the symposium in Wyoming. The expectation is high that both the Fed and the European Central Bank will support a new round of monetary stimulus when their meetings commence. Global markets may be a bit slow to push gold up until there is more clarity on what moves will occur.

In a recent letter from Federal Reserve Head Bernanke to Capitol Hill lawmakers concerning the release of the FOMC minutes last week indicated that the future of quantitated easing would depend largely on the US economies outlook at the time of the upcoming Fed meeting.

There are no guarantees that the Fed will move to another large purchase of US bonds. It is hard to know what the 12 voting members of the Fed will decide. The next announcement of their monetary policy will not come until September 13 and the minutes of their last meeting showed clearly that they are waiting to see how the August numbers on the US economy flesh out.

The current US economic growth is around 2%. The unemployment rate is expected to remain around 8.3% as we approach the presidential elections in November. Unless the US economic numbers begin to show some deterioration there may not be a need for further easing.

Some fear that easing may push the value of the dollar down and lead us into a higher level of inflation. This is the perfect rock and a hard place scenario. The jury is still out on what the most prudent move may be. Two ease or not to ease, that is the question on a lot of minds today.

The market is watching to see the new numbers of the US forecast to decide what to do. On Monday the Home Price Index will be released. On Wednesday the two figures for the gross domestic product report revisions from the second quarter will come out. Thursday we will see information on US personal income and spending and on Friday the Chicago Purchasing Managers Index will be revealed. So by the weeks and we should have a clear picture of where the economy is now and where we may be heading as we approach the next Fed meeting. Sit tight, we may be in for a bumpy ride.

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