Gold Up, Investors Expectations of Stimulus
Posted by Adam King on August 06, 2012
Gold prices gained on Monday, a continuation of gains on Friday after four
previous days of declines, as Friday’s economic data gave investors reason to expect the
Federal Reserve will not engage in fiscal stimulus.
Gold at first drifted after the release of the economic data that reported US
employers added more jobs to the economy than were expected in the last month.
However, prices quickly rebounded as the jobless rate had risen concomitantly.
The spot price of gold has been tied to the Federal Reserve’s quantitative easing
programs and during the last year expectations of quantitative easing has been the
primary driver in the gold market in terms of a price determination mechanism.
Monetary easing at this point would continue to hold down long-term interest
rates and maintain a low cost of holding gold in an inflationary market. There is also a
great deal of pressure on the dollar from easing, as well as inflation in the currency, both
of which make gold an opportunistic asset during periods of easing.
David Jollie, an analyst with Mitsui Precious Metals, remarked there is still
room or capacity for more easing, a statement which echoes comments from Federal
Reserve Chairman Ben Bernanke himself. Jollie sees the current US election cycle as a
deterministic factor in projecting out the next round of quantitative easing.
The spot price of gold is up 0.4 percent to $1,608.96 per troy ounce as US gold
futures for December delivery were also up $2.70 per troy ounce to $1,612.00.
The spot price of gold has been trading within a $75 band for the past four weeks,
which is a product of monetary easing expectations but also a reflection of relatively
lackluster physical investment activity, slower demand in Asian markets related to local
politics, and the volatility in the euro as a necessary response to the current Eurozone
The euro registered little change Monday as investors showed relative caution
regarding the latest announcements from European policymakers concerning solutions to
the debt crisis.
European equities, however, rose to new four-month highs on Monday as
investors showed hesitancy toward pushing the market too far down after the European
Central Bank’s decision to get more involved with the Eurozone debt crisis, epitomized
by comments by ECB President Mario Draghi made in recent weeks pointing out the
integrity of the euro.