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Gold Down Slightly As Caution Sets In
by Michael Locklear
September 5, 2012 – After rallying on Tuesday to a near six-month high gold prices receded slightly today from yesterday’s high of $1698.45 to a new spot price for gold at $1693.40 as of this afternoon. Caution is slowly creeping into the gold market as leaked reports concerning the European Central Bank and additional monetary easing as a record rising prices of gold are slightly pushed back today.
As expected, Mario Draghi, the president of the European Central Bank will announce the details of his new policies regarding the next round of bond buying to offset the dangerously high debt held by Spain and Italy. Unlike efforts in the past at quantitative easing the new ECB approach is unlikely to bring about inflation. The new approach is viewed as being fundamentally different. In the new approach money used to purchase Spanish debt will be offset. The realization that this new approach is not likely to further endanger the stability of the euro has gold investors quite nervous.
The source of gold market investors’ anxiety is the expectation that the euro will avoid deflation and the new moves by the ECB may actually help to stabilize the economy in Spain and Italy. Since gold prices rise with the threat of instability in currency values (this new plan may bring about increased ability if successful) and so gold prices are pulling back slightly.
In addition, if Mario Draghi’s new plan to control Spanish and Italian debt is a winner, than the need for Federal Reserve Chairman Ben Bernanke to move toward further monetary easing in the U.S. far less likely. This is not very empowering news for the gold bulls and other investors who are betting against the recovery of stability in European and US currencies.
Over the last four years quantitative easing in the United States has been extremely beneficial to gold investors, since it has pushed the price of gold up to nearly double the value prior to The Federal Reserve’s actions to put more money into the system since 2008. Although it is too early to predict the long-term future for gold prices, at the moment there is a lot of anxiety in the market. The next policy meeting of the Federal Reserve is next week, however on Friday we will receive a new report on the U. S. labor market, which will undoubtedly have a significant impact on whatever decision the Fed will reach its upcoming meeting.
Some investment experts are indicating that as a result of the significant growth in the precious metals market over the last month or so there may be a need for some cooling before the momentum picks up again. We will just have to keep watching where gold will go next.
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