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Gold Jumps On Safe Haven Buying, Rebound Hopes

Release Date: 
Monday, February 25, 2013

Gold prices rose more than $12 in afternoon trading, closing up $12.10 on the New York Spot Market as new concerns arose over the euro zone arose following Italy's general election and bargain hunting from Asia. "No doubt strengthening physical demand for gold from Asian buyers is providing some support for the yellow metal," a strategist with Standard Bank told the Wall Street Journal.

Investors continue to watch the Federal Reserve for signs on its quantitative easing policies. Frank Holmes, CEO and chief investment officer for U.S. Global Investors, commented on the relationship between the Federal Reserve's balance sheet and the price of gold:

"[T]he correlation between the Fed's balance sheet and the price of gold has historically been very high, at 0.93, according to Macquarie Research. The firm found that for every $300 billion expansion in the balance sheet of the U.S. government, there was a $100 an ounce increase in the price of gold. When you factor in the Fed's current bond purchases totaling $85 billion per month for the next nine months, the central bank will be adding $765 billion in new assets. 'Using the previous ratio, this would compute to a $255 an ounce increase in the gold price,' says Macquarie. By this measure alone, gold would rise approximately 16 percent over the next several months."

(Sources: "Comex Gold Bounces Up 1% Off Seven-Month Lows," WSJ, February 25, 2013; "PRECIOUS-Gold rises on rebound hopes, uncertain Italian election," Reuters, February 25, 2013; "A Test of Strength for Gold," Business Insider, February 25, 2013; "Inflation or Not, Gold Will Still Break $2,000: Analyst," CNBC, February 4, 2013.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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