Gold prices advanced despite strength in the U.S. dollar

The gold price continued to rebound Wednesday morning as the yellow metal climbed $7.00 to $1,639 per ounce. Gold prices advanced despite strength in the U.S. dollar, which gained against both the pound and the euro. Technical analysts are focused on whether the price of gold will hold above its 20-day moving average, currently at $1,636 per ounce. The gold price closed out 2011 in the midst of a 20% correction, but has now rallied $117 off its December 29th low of $1,522 per ounce.

Looking out over a longer time frame, Dundee Securities chief economist Dr. Martin Murenbeeld wrote in his most recent weekly Gold Monitor that the fundamental underpinnings for higher gold prices remains intact. “Our key bullish factor has not changed for years: monetary reflation. In response to record government debt levels, slow growth/recession, and a drift in much of the OECD towards deflation as the household sector continues to deleverage and governments are forced to cut entitlements, the full weight of economic stimulus falls on the shoulders of central banks”

“With a 1930’s environment threatening to engulf Europe,” Murenbeeld added, “the ECB and other central banks (including the PBoC) will maintain extremely loose monetary policies throughout 2012; the Fed, if nothing else, will wish to ring-fence the US financial sector in the likely event the Eurozone is downsized or splits. The monetary reflation factor alone, depending upon the specific crisis, could see gold rise well above $2000.”

Murenbeeld – who has been bullish on the gold price for the large majority of the past decade – went on to say that “Other factors should continue to favor gold in 2012, including central bank gold demand, which should add to demand for years to come, and geopolitical turmoil in the Middle East and elsewhere. The latter could cause periodic surges in the gold price, surges likely also to be reflected in the oil price…In short 2012 will, somewhat like 2008, be a contest between recession and monetary reflation. We are forecasting reflation will win the day for gold.”

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