2011-09-01

Mention of additional stimulus measures helped send the gold price toward $1,840 per ounce

The gold price dropped $6.00 Wednesday to $1,829.50 per ounce after gaining 2.6% during yesterday’s session. While the price of gold has been mired in a trading range over the past two weeks, the broader stock and commodity markets have regained their footing. Stocks are on pace to advance for the fourth consecutive day on rising expectations that the Federal Reserve is prepared to implement additional monetary easing measures at the September Federal Open Market Committee meeting.

The mention of additional stimulus measures helped send the gold price toward $1,840 per ounce. Looking ahead, many market strategists have adjusted their monetary policy outlooks to account for a more dovish Federal Reserve for longer than previously expected. The latest strategist to do so was Macquarie’s Stephen Harris, who in a note to clients wrote that “We think the Fed could keep rates unchanged until 2015. This is an increase from our previous expectation of 2014 and indeed, we don’t think it is much of a stretch to see short rates remaining unchanged for the rest of the decade.”

In light of its outlook for the Fed, Macquarie raised its 2011-2012 gold price targets. The firm is now forecasting a gold price of $2,000 by the end of 2011, and a $2,500 price of gold by 2012. “Gold has typically risen by nearly 25% per year when real U.S. short rates have been negative,” Harris asserted, “which looks to be a virtual certainty from now through 2012.”

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