2011-07-19

The price of gold advanced as high as $1,603.40 per ounc

The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices.

The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively.

Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the possibility of additional asset purchases. On Wednesday, “Helicopter Ben” offered a dovish tone and alluded to a new round of quantitative easing (QE), which sent the gold price to a new high. However, the following day he backtracked, noting that now is not the proper time for a third round of QE. In spite of the change in tone, the price of gold held firmly in positive territory over the balance of the week.

J.P. Morgan’s Michael Jansen offered a bullish gold price outlook in a note to clients, stating that the key event this past week was “Ben Bernanke’s somewhat Jekyll and Hyde performance on the Hill, in which he floated the idea of QE3 on Wednesday but more or less retracted it Thursday which contributed to a lot of the volatility in the broader equity and risk indices. For the main commodities though – especially gold – traders seemingly only listened on Wednesday and then started watching the Open on Thursday as gold has held up extremely well.”

In addition to the potential for QE3, J.P. Morgan highlighted additional support for the gold price from “the sovereign train-wreck brewing in Europe and the potential for a technical default in the US (as indicated by Moody’s with the notice that the US Treasury was on notice for a potential downgrade).” As a result, the firm contended that “the event risk is unlikely to recede this week or any time near term,” which should continue to support higher gold prices.

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