Gold Down from 6-1/2 Month High on Firmer Dollar Posted by Adam King on September 24, 2012
September 24, 2012 – Gold prices drifted almost 1 percent Monday in a pull back from Friday’s 6-1/2 month high as the dollar firmed and assets considered to have a higher risk, like stocks, the euro, and other commodities including crude oil, dropped lower.
Gold found stability and support on expectations for price strength in the long term following the announcement of new rounds of monetary easing from both the Federal Reserve and the European Central Bank earlier in the month.
The spot price of gold drifted down 0.7 percent to $1,760.00 per troy ounce as U.S. gold futures for December delivery were also down $15.30 per troy ounce to $1,762.70. Gold hit a high at $1,787.20 on Friday, the highest price for the precious metal since February 29.
The Federal Reserve launched a third round of quantitative easing this month, in which it will print money in order to purchase bonds at the rate of $40 billion per month until the rates in the labor market improve substantially.
The additional monetary easing is likely to keep downward pressure on long-term interest rates, placing the opportunity cost for holding precious metals at a low, and it will also weaken the dollar, increase liquidity, and increase concerns of inflation down the road.
At the moment, a stronger dollar coupled with concerns over the outlook in the European markets has put a damper on gold.
Daniel Brebner, an analyst with Deutsche Bank, said one of the issues confronting the gold market is the lack of obvious catalysts in the near term that would propel the gold price higher. He also notes continuing risk issues in Europe, U.S. manufacturing data that continues to disappoint, and Chinese growth that continues as a real risk in the near term.
The low growth concerns could underpin the dollar, in Brebner’s analysis, and keep gold from a vigorous performance in the near term.
Brebner also said he believes we are likely to see greater policy action over the next quarter in both Europe and in China, which may bolster growth in those regions. The likelihood is for further accommodating monetary policy in both areas, which could keep the price moving higher. Brebner says we will see $2,000 per troy ounce prices or higher in the first half of next year.