2012-01-18

Gold prices climbed above the $1,650 level on Speculation China Set to Ease

The gold price surged Tuesday morning, rising $17.05 to $1,661 per ounce. Gold prices climbed above the $1,650 level on speculation that Chinese policy makers were set to implement aggressive monetary accommodation following a weaker than expected gross domestic product figure. GDP in China grew 8.9% in the fourth quarter, the slowest pace in over two years. Investors and traders pushed up the prices of not only gold, but stocks and commodities as well following the news.

With regard to the Chinese GDP report, several analysts contended that slower economic growth is likely to continue in the months ahead. Economists at Citigroup wrote in a note to clients that “We expect GDP growth to slow more markedly in the first quarter due to the sharp investment slowdown under way.” At J.P.Morgan, economists predicted that GDP growth will slow to 7.6% in the first quarter of 2012 on a year-over-year basis. If these forecasts materialize, gold prices are likely to benefit from the policy response of China’s central bank.

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