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Gold at Record High on Possible U.S. Fed Easing

Release Date: 
Thursday, July 14, 2011

The price of gold hit record highs for the third consecutive day on Thursday following hints of monetary easing from the U.S. Federal Reserve and news that Moody's placed the U.S. credit rating on review for a possible downgrade. Continued concern over eurozone debt levels and a downgrade of Greece's credit rating by Fitch late Wednesday also helped to support gold. The metal traded at $1592.40 per ounce at 7:08 a.m. Pacific time on the New York Spot Market. Analysts at HSBC, Haitong Futures Co., UBS, and LGT Capital Management commented on the economic news noting its support for the price of gold.

"The climate driving gold higher is similar to that of Q2 2010, when gold also jumped to then record highs, buoyed by the emergence of the Greek sovereign crisis and U.S. quantitative easing," said HSBC analyst James Steel in a note. "Gold is reacting to a similarly bullish cocktail of factors except that as policymakers appear to have more limited options now, conditions are more gold-bullish now than in 2010."

“Gold will benefit from the turmoil,” said Guo Hongjun, head of research at Haitong Futures Co., China’s largest futures broker by capital. “Another round of quantitative easing will hit the dollar hard, drive up prices of commodities including gold, increase inflationary pressures and slow the recovery.”

"Clearly the Fed felt the need to open the door to QE3 given the deterioration of recent economic prints, particularly last week's June payrolls data," said UBS analyst Edel Tully in a note. "That the Fed now sounds more open to the prospect of further easing sparked widespread pricing-in of QE3, not only in gold, but across multiple asset classes."

"In the U.S...some interpretation could be made that the likelihood is increasing of further quantitative easing," said Bayram Dincer, an analyst at LGT Capital Management. "Another problem is the debt ceiling...and the U.S. being put under review. Aggregating all these multiple driving factors for gold, it's very positive.”

"A lot of chatter has been going through about Greece, Portugal, now Italy and Spain, and the gold market has been pricing this in on a continuous basis," Dincer said. The same “factors that have driven gold up in recent days remain firmly intact,” said James Steel at HSBC. “These include sovereign concerns in the E.U., contentious debt-ceiling talks in the U.S., and general economic uncertainty.”

(Sources: “Gold Surges to Record as Debt ‘Turmoil’ Drives Demand for Haven,” Bloomberg, July 14, 2011; “Gold Hits Record After Moody's Warning, Easing Hints,” CNBC, July 14, 2011;)

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