2012-02-02

Weaker than expected economic data helped to boost the price of gold

The gold price advanced Wednesday, gaining $7.80 to $1,747 per ounce.  The price of gold capped off the month of January by rising $10.15.  Weaker than expected economic data helped to boost the price of gold, which posted an impressive 11.1% rise in the first month of 2012.  In doing so, the gold price posted its best month since August of last year and recaptured almost its entire 10.4% decline in December.

Despite the recent rise in gold prices, many investors and analysts remain cautious on the outlook for the Gold.  Scotta Mocatta’s Simon Weeks, who has repeatedly questioned the sustainability of the recent rally, noted, “if gold breaches the mid $1760s in a convincing manner and continues as it has been on the crosses then I will have to throw the towel in but for the time being I remain suspicious as to how genuine the current level of demand is.”

Bernanke and his fellow central bankers based a substantial amount of their dovish stance on the myriad of headwinds continuing to plague the U.S. economy.  The labor and housing markets have shown few signs of rebounding, and the fourth quarter 2011 GDP report came in considerably below economists’ estimates.

This latest batch of data will serve to reinforce the Fed’s view that a significant amount of monetary accommodation is needed to support the economy.  The implications of the reports for the gold price are clear – so long as the economy remains at risk of a recession, easy monetary policies are likely to provide a favorable backdrop for the gold.

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