Gold Moves Up as Signal for U.S. Stimulus Weakens the Dollar Posted by Adam King on January 14, 2013
Gold gained in London trading as well as early morning New York trading on Monday as speculation over the continuation of U.S. stimulus weakened the dollar and spurred further demand for alternative and safer investments.
U.S. gold futures for February delivery gained $5.20, or 0.31 percent, to $1,665.90 per troy ounce. The spot price of gold gained $3.61, 0.20 percent, to $1,666.34 per troy ounce.
Charles Evans, the President of the Federal Reserve Bank of Chicago, said the U.S. should continue accommodative policy supporting the economy, a statement that increased speculation about the Fed’s plans for stimulus in the future following the minutes of the FOMC meeting in December that revealed more than one member of the committee was leaning toward a pullback or cessation of stimulus in the current year.
Subsequent to Evans’ statement, the U.S. dollar reached a 10-month low against the euro. A near-term effect of quantitative easing is weakness in the currency against other major currencies. Both fiscal stimulus and a relatively weak dollar are supportive of the gold market. A weak dollar makes the price of gold more affordable for holders of foreign currency, who have been choosing to remain on the sidelines with a stronger dollar in effect.
Bernard Sin, head of currency and metal trading at bullion refiner MKS SA in Geneva, said the market is watching the dollar developments very closely. He noted that physical demand from India, the biggest market for gold in 2011, is supportive of gold prices. He added gold’s bullish trend is intact.
The January 4 release of the Fed minutes brought gold to a four-month low in trading despite record demand for gold and silver bullion at the U.S. Mint. During the two rounds of easing from December 2008 to June 2011 that saw the Fed buy $2.3 trillion of debt, bullion prices rose 70 percent.
In a report dated yesterday, Goldman Sachs Group Inc. recommended fresh tactical longs in gold following the recent drop in prices as the government continues debates on the debt ceiling.
Federal Reserve Chairman Ben Bernanke is scheduled to speak at an event in Michigan, a speech that will be closely watched for more definitive clues to the Fed’s policy in the future.