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Gold Reaches New High – New Fed Action Anticipated

Release Date: 
Monday, August 22, 2011

Gold moved to a new record high today as the yellow metal flirted with $1900 per ounce before closing just $1 shy of this level on the New York Spot Market.  Speculation is brewing that the Fed will signal further monetary stimulus at the central bank's annual conference in Jackson Hole, Wyoming on Friday, boosting investor demand for gold according to analysts at Richcomm Global Services and UBS.  At last year's meeting, Fed Chair Ben Bernanke announced a $600 billion bond-buying program that caused gold prices to rally higher.

"There has been a heavy round of speculation that the Fed could be pushed (into another round of) quantitative easing sooner than thought, as there haven't been any signals of a possible economic recovery," said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.  "With gold being the only safe haven ... which cannot be intervened (in), investors are left with very less choice other than jumping into the chase, despite being late," said Unni.

"Growing speculation that Fed Chairman Bernanke will hint at further easing in his Jackson Hole speech is prompting investors to buy gold here," said UBS in a note.  Gold has seen support from loose U.S. monetary policy in recent years, with quantitative easing depressing the dollar and keeping real interest rates very low.

Analysts continue to see stagnant economic growth and sovereign debt, among other issues, as supportive of gold prices. "The economic data, debt problems, balance sheet problems are all deep-rooted and will take years to work out of the system and that is why we are still bullish on the trend in gold," said Paul Walker, global head of precious metals at industry researcher GFMS Ltd.

"A developed world with slower growth, a large fiscal deficit and near zero rates over the next few years, inflationary pressures in emerging economies, and larger political and economic uncertainty bodes well for history's oldest form of wealth," Barclays Capital said.

Gold for immediate delivery may reach $2,000 an ounce by the year end, extending this year's gain to 41 percent, according to the median forecast in a Bloomberg survey of 13 traders and analysts. That would be the most since the 127 percent surge in 1979, according to Bloomberg data.

Gold may surge as high as $2,400 an ounce next year as the precious metal is still in the "middle of a bull run," said Jeffrey Rhodes, chief executive officer at INTL Commodities LLC.

(Sources:  "Gold Seen Heading for Biggest Annual Gain in 32 Years on Flight to Safety," Bloomberg, August 22, 2011;  "PRECIOUS-Gold climbs towards $1,900/oz ahead of Fed meet," Reuters, August 22, 2011;  "PRECIOUS-Gold soars to record near $1,900 on econ woes," Reuters, August 22, 2011)

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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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