Gold at 4-1/2 Month High On Stimulus Hopes
Posted by Adam King on August 27, 2012
August 27, 2012 – The price of gold reached its highest level since mid-April on Monday, fueled by expectations the US Federal Reserve may be preparing for another round of fiscal stimulus to spur the economy.
In platinum, the world’s third largest producer, Lonmin, continues to report violence spreading to more of its operations after 44 people were killed this month during violence spurred by labor strife at its central mine.
While previous meetings between central bankers have given numerous clues that monetary policy easing is on the agenda, bullion investors are now awaiting the annual gathering at Jackson Hole, Wyoming, set to begin this Friday.
In a letter viewed by Reuters on Friday, Federal Reserve Chairman Ben Bernanke informed a Congressional oversight panel that the bank has room to deliver additional stimulus measures. Most recent US data has been mixed as economists still have concerns about figures like unemployment and the pace of the recovery.
Stimulus has been very beneficial to the precious metals historically, with money printing generally bringing higher gold prices. Stimulus also boosts liquidity and keeps long-term interest rates low, though the potential for inflation is a direct concern.
The spot price of gold hit a 4-1/2 month high at $1,676.45 per troy ounce and then found a balance at $1,669.20 per troy ounce. The price of gold gained 3.4 percent last week, the biggest week-on-week gain since late January of this year.
Alexander Zumpfe, a trader with the precious metals house Heraeus, pointed out that trading is thin today with London on a Bank Holiday. He added that gold is trading on the upper-side of its four-month range but needs a more convincing break of the $1,675 level before it can test the $1,700 per troy ounce level once again.
However, Zumpfe adds that after last week’s relatively steep run-up, if gold fails to break through $1,675 we could see some profit taking before the price levels rise.
Spot platinum dropped 0.4 percent to $1,535.93 per troy ounce after rising 5.4 percent last week, the biggest weekly rise since February, following an outbreak of violence at a mine in South Africa. South Africa is the source of 80 percent of the world’s platinum and reports today suggest the violence has spread from an isolated incident at Lonmin’s main mine to other operations in the east.