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Stimulus Speculation Pushes Gold Toward Five-Month High
by Michael Locklear
September 4, 2012 – Federal Reserve Chairman Ben Bernanke’s speech last week at the Fed’s annual symposium in Jackson Hole, Wyoming that hinted at an inclination toward further monetary easing fueled gold prices on Monday. Strong investor demand coupled with the expectation that the Fed will move in the near future toward further monetary stimulus has gold prices hovering near the highest prices seen in five months.
Gold prices have been rising for the last three months with the largest single month price increase last month. August saw the biggest price gain for gold since January with an increase of 4.8%. The increase is being fueled by hopes and speculations, on the part of bullish gold investors, that the Federal Reserve will begin a new round of bond buying known as QE 3.
Friday saw a record high in gold holdings held in exchange traded funds as speculators experienced their biggest weekly price gains since January. Although there were few clear indications of the intentions of the Fed chairman regarding further monetary easing, his remarks in Wyoming clearly left a crack in the door large enough for speculators to move through and further push up the price of gold from their expectations that his comments indicate further stimulus.
On Friday, spot gold prices reached a five-month high of $1692.71 per ounce and rallied to its highest percentage increase in a single day since June when it rose 2.1%. Although the market was closed on Monday for Labor Day holiday December delivery for US gold futures slid up to $1694.60 per ounce as it saw an increase of 0.43%.
The real question becomes where will gold go from here? Some are saying that it may take actual monetary easing to push gold pass the $1700 mark. Others speculate that widespread economic stimulus from the Federal Reserve, European Central Bank and the Chinese Central Bank could be the impetus required to push gold as high as $3000 to $4000 per ounce.
In view of the current circumstances however, some experts speculate it is highly unlikely that gold will break the $1800 per ounce ceiling. Since late in 2008 when the Federal Reserve first instituted monetary easing gold has doubled in price. The sting of inflation has been taken out by low real interest rates and as a result of gold is in higher demand by investors as they move from stocks and bonds to the security of gold.
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