Gold Crosses $1,600 on Policy Easing
Posted by Adam King on July 03, 2012
July 3, 2012 – Gold picked up speed on Tuesday in order to breach the $1,600 per troy ounce level, with sentiment towards precious metals warming as additional weak economic data fueled expectations that central banks will pull back hard line restrictions on economic policy in order to boost growth.
The rally experienced in gold was also experienced in other markets, with share prices rising around the world.
For the first time in almost three years, US manufacturing decreased in the month of June, the latest report in a long string of data from both European and Asian markets that suggest the sovereign debt crisis in the European Union is affecting economies throughout the world.
The European Central Bank is widely expected to lower rates to new record lows later this week. The lackluster economic data has led to rate expectations both in Europe and in the US.
Low interest rate policies typically support the gold market as added incentive in owning tangible assets rather than currency or savings make gold a more risk-averse asset.
“Over the last few weeks US 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.
The spot price of gold rose 0.7 percent for the day to $1,608.39 per troy ounce with US gold futures for August delivery up as well around 0.7 percent to $1,609.40.
With US non-farm payrolls data due out on Friday of this week, investors are expecting to gain a better insight into the current status of the labor market, which will be taken both as a major economic indicator as well as an insight into the next policy move by the Federal Reserve.
Dominic Schnider, an analyst at UBS Wealth Management in Singapore, believes there is an improved chance of economic stimulus. However, he took some caution with the expectation after the decision by the Federal Reserve to extend the “Operation Twist” program through the end of the year.
“We are unlikely to see a big add-on after Operation Twist was extended, unless things fell off the cliff. And remember, when things did fall off the cliff in 2008, gold fell as well.”
US Gold Market