Gold price were supported by a report from the International Monetary Fund (IMF)

The gold price stabilized near $1,775 per ounce on Tuesday despite further strength in the U.S. dollar.  Gold price were supported by a report from the International Monetary Fund (IMF) which lowered its forecasts for global economic growth in 2012 and 2013 and highlighted an “alarmingly high” risk of a more significant slowdown.  The spot price of gold held in a narrow range between $1,773 and $1,782 in overnight trading, while the U.S. Dollar Index (DXY) advanced 0.3% to 79.788.

The IMF’s report reduced its 2012 target of global GDP growth to 3.3% from 3.5%, and its 2013 projection to 3.6% from 3.9%.  In addition, the firm noted that its forecast implies a 15% possibility of recession in the United States in 2013, a 25% chance in Japan, and a more than 80% likelihood in the euro zone.  The IMF pointed specifically to Greece and Spain as nations where the economic challenges are most acute.

In its report, the IMF cited government spending cuts, stress in financial markets, persistently high levels of unemployment and substantial political uncertainty as reasons for its forecast reduction.  Furthermore, it noted that “The recovery has suffered new setbacks, and uncertainty weighs heavily on the outlook… Downside risks have increased and are considerable.”
While the gold price generally benefits from the response of policymakers to financial and economic weakness, this morning the yellow metal’s advance was tempered by the U.S. dollar, which has been the safe haven asset of choice during deflationary periods.

Commenting on these developments, Deutsche Bank’s head of commodities research – Michael Lewis – stated that “The return of dollar strength has stalled the move in gold.”  However, he added that the dollar’s rally is “very temporary,” and that the price of gold is “still on track to see more gains.”

Lewis went on to say that “The danger with Greece and Spain is that it does have a tendency to increase the buying of U.S. treasuries, which is dollar supportive. But our sense is that the real driver for the dollar will be real interest rates and real interest rates in the U.S. are negative.”

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