Gold Steady Ahead of Jackson Hole Summit Posted by Adam King on August 30, 2012
August 30, 2012 – Gold prices climbed higher in Europe during Thursday trading but remained in a relatively tight range amid uncertain speculation over whether the Federal Reserve will unveil a new round of outright stimulus.
Federal Reserve Chairman Ben Bernanke is set to deliver a speech at Jackson Hole, Wyoming on Friday, possibly providing more clues as to whether the Fed will embark on a further asset-purchasing program.
Gold has gained more than 2 percent since the release of the Federal Open Markets Committee Meeting on August 22nd, which suggested the Fed may be prepared to begin a third round of quantitative easing in order to bolster economic stability.
Monetary easing keeps long-term interest rates under pressure while boosting liquidity, but weakens the dollar and has the potential to instigate inflation. All of the effects of easing are positive for gold and the last two rounds of quantitative easing have benefited the gold market greatly.
Saxo Bank analyst Ole Hansen has said his bank has adopted a wait-and-see approach in regards to gold. Though there was profit taking in the market yesterday, the gains made in the last week are holding up well. He sees the $1,630 per troy ounce support level as an important indicator. If we can hold that level on any pullback, the technical outlook is good, in his view.
Hansen added that he believes the most likely outcome from tomorrow’s speech will be an extension of the very low interest rates until 2015. Initially, this could be a disappointment, but the low interest rate policy is supportive of the gold market overall.
The spot price of gold gained 0.1 percent to $1,657.14 per troy ounce as US gold futures for December delivery dropped $2.90 per troy ounce to $1,660.10.
A lack of certainty over central bank actions brought world shares prices and industrial commodities lower on Thursday as investors lost risk appetite.
The euro also gained against the US dollar, partially in anticipation of some announcement from the Fed, ahead of the Jackson Hole meeting.
The euro has been strengthened in currency markets by indications from the European Central Bank that it will unveil actionable plans next week in order to counteract extremely high borrowing costs in Spain and Italy. The weakness in the dollar, resultant from this, has also been beneficial to gold.