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Gold Rises as Central Banks Expected to Continue Monetary Easing

Release Date: 
Tuesday, March 5, 2013

Gold rose on expectations that central banks will continue or expand their current fiscal policies.  The metal was $5.90 higher at 7:27 a.m. Pacific Time on the New York Spot Market, at $1,581.50 per ounce.  Spot silver was $0.42 higher at $29.06 per ounce.  (Click here for the most current spot prices.)

"The Fed and its monetary policy actions are still the biggest issue day-to-day in the gold market, but you can see more discussion also about the possibility of looser monetary policy in Japan, or within Europe, or elsewhere," Mitsui Precious Metals analyst David Jollie said.  "There's more of a realization that economic growth is not yet at a level that any country is happy with, and that therefore we could see further easing.”

Yesterday, central bank officials in the U.S. and Japan made statements favoring policy stimulus.  Federal Reserve Vice Chairman Janet Yellen endorsed a “highly accommodative stance;” while Chairman Benjamin Bernanke warned against the premature removal of stimulus.  Haruhiko Kuroda, nominated as the governor of the Bank of Japan, said he would do whatever is required to end 15 years of deflation.

“We are going through a very slow period and it is a situation where we need central banks to step up," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong. "If they do, it will be good for gold."

The European Central Bank (ECB) meets in Frankfurt on Thursday while the Band of Japan and Bank of England will convene Wednesday.  Political gridlock in Italy is causing concern among investors worried the euro zone crisis amy worsen.  European Central Bank (ECB) President Mario Draghi “maintains a dovish stance even without lowering the rate,” said VTB Capital analyst Andrey Kryuchenkov.

Regardless of gold’s recent price volatility, private investors continue to own gold.  "The most recent price action has not caused increased investor concern," says Jeff Marshall, managing director of research sat Convergent Wealth Advisors in Washington.  Convergent's clients typically keep about 2% to 4% of their money in gold and the firm hasn't recommended changing the allocation recently. "We expect that we'll have a position in gold for some time,” he noted.

(Sources:   “PRECIOUS-Gold snaps 4-day fall on prospects of further easing,” Reuters, March 5, 2013; “PRECIOUS-Gold snaps 4-day decline on expectations of easy money,” Reuters, March 5, 2013;  Gold: Why Some Investors Are Still Hanging On,” Wall Street Journal, March 5, 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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