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Gold Price Recaptures $1,370, Uptrend Intact

Release Date: 
Monday, January 10, 2011

GOLD PRICE NEWS – The gold price was a bastion of strength Monday morning, rising $2.50 to $1,371.50 per ounce.  The price of gold, after sinking 3.7% last week, gained as stocks came under selling pressure.  Yields on Portuguese, Spanish, and Italian bonds rose and the price of insuring government debt spiked as well.  With a number of European sovereign debt sales coming this week, investors are becoming increasingly nervous that demand may be tepid.  While the U.S. dollar-denominated gold price has declined 1.2% over the past thirty days, the price of gold in terms of the euro has actually gained 1.3%.

Stock prices fell overseas, notably in China, on escalating concerns over inflation.  Price inflation is creeping higher in the developing world with food inflation a chief concern among central bankers and politicians in emerging nations.  Surging inflation in Brazil, India, and China is partially a result of excessive dollar liquidity emanating from the United States.  Federal Reserve Chairman Ben Bernanke’s easy monetary policies, punctuated by his ongoing quantitative easing initiative, have helped drive up commodity prices and helped to foster budding asset bubbles.

While it appears that Bernanke is committed to a deflation-fighting policy despite the absence of deflation, a number of analysts suggest that as the U.S. economy improves, Bernanke will begin to signal an end to the Fed’s ultra-easy monetary policies.  This would likely pressure the gold price, which has risen as the Fed Chairman has sacrificed in the U.S. dollar in order to engineer an economic recovery.

However, Bernanke’s constant references to America’s experience in the 1930s suggest that his fears of deflation are so severe that he will not remove his foot off the accelerator until the car actually crashes.  Bernanke’s obsession with the Great Depression, coupled with the Japanese experience of the past two decades suggest that easy money is here to stay – a macro-economic backdrop supportive of gold and investments tied to the gold price.

Macquarie research analyst Steve Harris, in a note to clients Monday morning, noted that “the depth of the last recession, the slow pace of the recovery, and the need to unwind massive of amounts of unconventional stimulus before raising rates are three factors supporting our outlook for an extended period of near zero US short rates – we think it could last five years.”

Harris and his team went on to reiterate their bullish outlook on both the gold price and the shares of gold mining producers, commenting that “Gold has historically risen at a pace of over 20% when real US short rates are negative (which we expect to be the case for most or all of the next five years). Clearly, gold equities should outperform under this scenario.”

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This article is independently provided by and does not represent the views or opinions of Goldline International, Inc. Although the information in this article 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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†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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