Gold prices have risen on the back of the prospects for further economic weakness in the second half of 2011

The gold price surged closing this week ahead of the release of the monthly jobs report and rallied further on the weaker than expected data. The price of gold climbed $56.12 to $1,882.30 per ounce after the Labor Department reported that zero nonfarm payrolls were created in August versus expectations of 68,000, according to a Bloomberg survey of economists. This was the weakest jobs data since September 2010. Furthermore, July’s payroll figures were revised downward. The unemployment rate was unchanged at 9.1% in August.

Gold prices have risen on the back of the prospects for further economic weakness in the second half of 2011 and into 2012. Furthermore, the Federal Reserve’s recent pledge to hold the Fed funds rate near zero until mid-2013 has fostered an even more favorable environment for the price of gold. Until a more consistent set of encouraging economic data emerges, the gold price is likely to remain well supported.

Robin Bhar, senior metals analyst with Credit Agricole, echoed these sentiments in a note to clients this week. “When real interest rates are negative like in the (United) States for the foreseeable future, that’s going to be a huge boost to gold,” Bhar wrote. “The opportunity cost, among other factors, is negligible…Nothing has really changed in terms of the appetite (among investors) for diversifying into and holding gold as a form of insurance.”

Bhar went on to say that “Economic and financial developments should be the main drivers of the gold price for the rest of 2011.” Specifically, the Credit Agricole analyst pointed to rising debt burdens in the U.S. and euro zone, ongoing currency debasement, and deflationary risks, among other items.

Comments

Post a Comment

Popular posts from this blog

Gold edges up on weaker dollar, dovish U.S. Fed policy bets

Image
 Gold edged higher on Monday, helped by a weaker dollar and expectations that the U.S. Federal Reserve will reiterate its dovish monetary policy stance this week. Spot gold was up by 0.1% at $1,943.58 per ounce. U.S. gold futures rose 0.1% to $1,950.10 per ounce. “Gold is firm on the basis that the Fed could adopt a further dovish message with respect to average inflation targeting,” said Michael Hewson, chief market analyst at CMC Markets UK. “If you want to have a policy of average inflation targeting, you’re going to have to go into detail as to how you are going to arrive at that particular outcome.” The dollar retreated on Mond ay, bolstering gold’s appeal for investors holding other currencies, ahead of the Fed’s policy decision due on Wednesday. “If inflation forecasts remain at 2% or below, this could offer gold a tailwind as the zero-yielding metal thrives in a low-interest rate environment,” said FXTM analyst Lukman Otunuga. Market participants are also wai...
Read more

For the gold price, two outcomes are possible.

Image
For the gold price, two outcomes are possible. First is a return to or near the April low ($1,277.40). Second is a drop to a lower low, $1,240 - $1,260. Yet a third possible outcome is that the June and December lows were not a double bottom and one further drop may come. I account that the least likely, and look for a low here by the end of the week, but I'm no more'n a nacheral born durnd fool from Tennessee, so what do I know?   You'd think that an institution charged with promoting the gold industry would produce reports that at least cast the best light on gold's prospects. You'd think wrong, if you're thinking about the World Gold Council. They've been negative on gold for, oh, the last 14 years or so. Today they issued a report that contained a nugget about Chinese business using physical gold as collateral for bank credit ($40 bn worth) but they managed to tease a gloomy forecast even out of this inventive monetary use. That and bad ...
Read more

The price of gold advanced as high as $1,603.40 per ounc

Image
The gold price broke out to a new all-time high above $1,600 per ounce Monday morning, rising for the eleventh consecutive trading session. The price of gold advanced as high as $1,603.40 per ounce before backing off to trade just the $1,600 level. The yellow metal gained on the back of a surge in borrowing costs for Italy, the latest European nation to see its bond market come under heavy selling pressure. The lack of a deal to raise the $14.3 trillion debt ceiling also helped boost gold prices. The eleven-day rise in the gold price is the longest winning streak since January of 1980. The gold price delivered another noteworthy performance last week, climbing 3.2% on its way to a series of fresh record highs. With Monday’s advance, the gold price extended its monthly and year-to-date gains to 6.6% and 12.5%, respectively. Last week’s two-day Congressional testimony by Chairman Ben Bernanke on the economy and monetary policy revealed that the Fed remains open to the...
Read more