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Open-ended Monetary Stimulus Prompted Analysts to Raise Gold Price Forecasts

The U.S. Comex gold futures held their grounds in the past two days. The Dollar Index rebounded 0.41 percent while the S&P 500 index and the Euro Stoxx 50 Index were flat. The CRB Commodities index fell for the fourth day by 4.36 percent this week. Year-to-date, the gold futures returned 12.83 percent, the S&P 500 Index, 17.98 percent and the Euro Stoxx 50 Index, 15.17 percent. The Dollar Index and CRB Commodities Index trailed behind and returned -0.96 percent and 0.53 percent respectively.

Gold price was on the one hand boosted by more central bank stimulus actions around the world and on the other hand hampered by weaker economic data out of Europe, China and Japan which caused the US dollar to strengthen. On 19 September during Asian morning, the Bank of Japan announced a 10 trillion yen increase in its government debt purchase and eliminated the minimum bidding yields for the monthly government debt purchase to counter further economic contraction. Recently the ECB has announced unlimited government bond purchases should a country follow a strict economic program. The U.S. Fed has also announced an “open-ended” QE3. Gold price jumped upon the stimulus news although the price came under a bit of pressure on Thursday. The Eurozone September manufacturing PMI contracted for the fourteenth month while the Chinese flash HSBC manufacturing PMI in September may show the eleventh month in contraction. The rows between China and Japan over sovereignty and external weaknesses have dragged down trade between the two large countries, causing some pressure on stock markets.

Although there is a sense in the market that monetary stimulus has not yet revived economic growth, analysts have been revising up their gold price forecasts given the “open-ended” monetary stimulus from the major central banks which would likely benefit gold price over other types of commodities. On Tuesday, Deutsche Bank analyst expected gold price to reach $2,000 by 1H 2013 while the Bank of America Merrill Lynch analyst predicted gold to end at $2,400 in 2014. According to Bloomberg, bullish trader’s expectations on gold price continued into the eighteenth week.

The market will likely focus on the Hollande-Merkel meeting on 22 September, Germany’s September IFO business climate on 24 September, the U.S. September consumer confidence data on 25 September and the U.S. August durable goods orders on 27 September.

Austin Kiddle
Sharps Pixley, London
www.sharpspixley.com

21 Sep 2012 | Categories: Gold

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