2012-08-28

(QE3) could be forthcoming in the months ahead.

The gold price stabilized near $1,672 per ounce on Monday amid a relatively quiet start to the week this morning. Gold prices held in a range between $1,670 and $1,680 in overnight trading while the U.S. Dollar Index traded near the flatline at 81.570.  Today’s consolidation in the price of gold followed last week’s 3.3% advance that sent the yellow metal to its highest level since mid April.

The recent strength in the gold price was driven in large part by rising expectations of further monetary stimulus.  Last week, the latest Fed minutes – as well as a letter by Ben Bernanke to Congressman Darrell Issa – provided a dovish tone indicating that a third round of quantitative easing (QE3) could be forthcoming in the months ahead.

Those developments arrived ahead of ahead of the Fed’s Economic Symposium in Jackson Hole, Wyoming later this week.  There, Fed Chairman Ben Bernanke and European Central Bank (ECB) President Mario Draghi will each deliver speeches on the state of their respective economies.
As for the gold market, sentiment has improved in recent weeks, but remains relatively muted.  The most recent weekly Commitment of Traders (COT) report showed that speculators raised their net long positions in gold futures and options for the week ended August 21 to 140,126 lots – the highest since early May.

However, analysts at Standard Bank cautioned that “Despite the improvement, overall gold positioning remains weak … leaving the metal vulnerable to temporary sell-offs.  With market hopes pinned on Bernanke’s speech this Friday, the threat this week is particularly acute.”
The firm went on to say that “This week’s conference is not the forum for Bernanke to make any strong commitment to easing. Therefore, as usual, the market’s reaction will be largely based on reading between the lines – leaving room for all manner of interpretations and short-term reactions.”

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