2012-10-02

Gold climbed as much as $20.96, or 1.2%, to $1,794.32 per ounce

The gold price began the fourth quarter of the year on a positive note amid a broad-based rally in financial markets and weakness in the U.S. dollar.  The spot price of gold climbed as much as $20.96, or 1.2%, to $1,794.32 per ounce this morning – its highest level since November 14, 2011.  Gold prices received a boost from dovish remarks by Charles Evans, President of the Federal Reserve Bank of Chicago.  Evans stressed the need for the Fed’s open-ended third round of quantitative easing (QE3) until the U.S. unemployment rate drops below 7%, which is currently at 8.2%.

The gold price began the final quarter of 2012 with a great deal of momentum, thanks in large part to the expansion of ultra-easy monetary policies by the world’s largest central banks.  During the prior three months, the price of gold climbed 10.9% – marking its best period since the second quarter of 2010 – after the Fed, the European Central Bank (ECB), and the Bank of Japan each announced additional money printing measures to stimulate their respective economies.

Evans – considered to be one of the Fed’s foremost doves, along with Chairman Ben Bernanke – stated in a CNBC interview this morning that “There’s scope for doing more” with regard to QE3.  Under the current structure, the Fed will be now purchasing $40 billion of mortgage-backed securities per month for an unspecified amount of time that is dependent on the U.S. unemployment rate and several other economic factors.

“I would have been doing more for a longer period of time,” Evans contended.  “The committee made the determination that we’re a lot closer to something like unacceptable growth — stall speed — and it’s time to do more.”
Looking ahead, Mr. Evans and his fellow central bankers will receive more economic data this week as they continue to monitor the condition of the U.S. economy.  In addition to this morning’s ISM Manufacturing Index – which came in above expectations of 49.7 at 51.5 – the ISM Services report will be released on Wednesday.  The ADP Employment data will also be announced that day, followed by weekly jobless claims on Thursday and the non-farm payrolls report for September on Friday.

As for the gold price, MKS Finance’s head of trading, Afshin Nabavi, commented on Monday that “Overall, I still think one has to buy on dips. Everything else, whether it is political or economic, seems to be a shambles … Investors that missed the boat (at lower prices) perhaps want to see if we get to $1,800 before they get back in.”  Nabavi also noted that he expects the price of gold to rally to $1,900 – just below its all-time high of $1,923 – by the end of this year.

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