2012-07-26

The gold price recaptured the $1,600 per ounce level

The gold price recaptured the $1,600 per ounce level on Wednesday amid talk of further monetary easing in both the United States and Europe.  The spot price of  gold climbed as much as $23.34, or 1.5%, to $1,606.32 earlier this morning, fueled in part by weakness in the U.S. dollar.  The greenback fell 0.3% against a basket of foreign currencies, while the euro advanced 0.5% to 1.2134 against the dollar.  The SPDR Gold Trust (GLD), a proxy for the gold price and the world’s largest gold exchange-traded product, jumped $1.62 to $155.14 per share.

Yesterday afternoon the gold price was buoyed by reports that the Federal Reserve is “moving closer” to implementing further monetary stimulus to support the struggling U.S. economy.  The Fed is more seriously considering launching a third round of quantitative easing (QE3) – whose absence at last month’s Fed meeting helped send the price of gold to near multi-month lows.  However, in recent weeks, Chairman Ben Bernanke and his fellow central bankers have grown more concerned that the U.S. could be headed for a recession and therefore appear more likely to act in the near future.

While today’s rally in the price of gold has improved the outlook for the yellow metal, further strength is necessary to launch the yellow metal out of its recent trading range.  Tom Kendall, Head of Precious Metals Research at Credit Suisse, contended that “Four to six weeks will take us into an interesting time for the gold market, which we think should be more constructive.”

Kendall added that “Between now and then, physical demand is still pretty soft, positioning is disinterested across much of the investment community. Technically the price action is starting to look a bit more constructive… but that could fade as quickly as it appears to have been building.”

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