2012-09-11

Gold price rally has been driven mainly by hopes that central banks will implement QE3

The price of gold fell slightly on Monday amid profit-taking following three straight weekly advances.  The spot gold price dipped $6.30, or 0.4%, to $1,730.80 per ounce in morning trading, after reaching a six-month high of $1,745.32 last Friday.  Today’s modest weakness in gold prices coincided with a small rise in the U.S. dollar, which had dropped to a four-month low last week against a basket of foreign currencies.

Looking ahead, investors will soon find out if Fed Chairman Ben Bernanke and the FOMC will announce QE3 at this Thursday’s Fed meeting.  Across the Atlantic, on Wednesday the German Federal Constitutional Court will rule on the viability of the European Stability Mechanism (ESM) – the proposed permanent financial assistance program aimed at combating the euro zone sovereign debt crisis.

Commenting on the outlook for the price of gold, Barclays Capital wrote in a report to clients that “Our economists now expect the Fed to ease further at this week’s FOMC meeting, providing gold the catalyst it requires to test fresh highs for this year over the coming weeks.”
Analysts at Commerzbank echoed that sentiment, noting that “The latest price rally has been driven mainly by hopes that central banks will implement monetary easing measures…[QE3] is likely to spark higher inflation in the medium to long term [and] lead to fears of depreciation of key trading currencies.”

“This should benefit gold as a store of value and as an alternative currency,” Commerzbank added.  “We are therefore convinced that the gold price will continue to climb.”

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