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Gold Rises $20 on Expectations of Monetary Easing

Release Date: 
Tuesday, July 3, 2012

Gold prices rose more than $20 per ounce in morning trading as poor economic data raised expectations of monetary easing from central banks around the world. Gold was $20.30 higher at 7:06 a.m. Pacific Time on the New York Spot Market, trading at $1,618.50 per ounce. Spot silver was $0.74 higher, trading at $28.36 per ounce. (Click here for the most current spot prices.)

U.S. manufacturing contracted in June for the first time in nearly three years while data from Europe and Asia suggested weak economic output. The European Central Bank (ECB) is widely expected to move interest rates to record lows on Thursday. "You can take it as a sign that chances of QE (quantitative easing) are improving," said Dominic Schnider, an analyst at UBS Wealth Management. China is also expected to lower the minimum reserve requirement ratio for banks again.

"The mood on the financial markets has generally been bright since the end of last week, and the U.S. dollar has weakened, on top of which gold is reaping the benefit of market expectations for further monetary easing around the globe to stimulate economic growth," Commerzbank said in a note. "Over the last few weeks U.S. numbers have worsened a lot and this has brought about the probability of QE3 - which is probably the most important reason for the market to believe in gold," Commerzbank analyst Eugen Weinberg said.

"I think the basic conditions are still well in play for gold," said Ric Spooner, Chief Market Analyst, CMC Markets. "The probability of more central bank monetary easing, particularly from the U.S., I think, will place downward pressure on the U.S. and create concerns about inflation, even when we do see demand picking up." He added, "gold is one of the commodities that I rank as an outperform over the next twelve months or so."

Monthly U.S. non-farm payrolls data for June due on Friday will provide investors with additional information that may influence the Fed's decision on quantitative easing.

(Sources: "Gold rises on hopes for central-bank action," MarketWatch, July 3, 2012; "PRECIOUS-Gold vaults $1,610 on prospects of policy easing," Reuters, July 3, 2012; "PRECIOUS-Gold gains on stimulus hopes after bleak data," Reuters, July 3, 2012; "Basic Conditions Still in Play for Gold," CNBC, June 27, 2012)

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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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