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Gold spot price has climbed nearly 12 percent so far in 2012, supported by positive economic data and monetary policy guidance in the US.
By Dave Brown – Exclusive to Gold Investing News
With gold prices nearing a 2 month high in the range of $1,755 per troy ounce, Thursday’s news of reduced United States claims for unemployment benefits has generated optimistic sentiment. The United States equity markets responded positively to the news with the dollar rising against the euro.
Last week monetary policy guidance in the United States supported spot market gold prices, which have climbed 12 percent so far this year. Underlying confidence in the ability for the price of gold to strengthen during a low interest rate environment has allowed it to rise this year even during periods when other assets are sensitive.
Economic outlook in the United States and Europe
In the United States most economists are expecting a combination of reduced inventory expansion and cautious consumer spending to result in modest quarterly growth, with predictions in the range of 2 percent annualized for the current quarter.
The European sovereign debt crisis challenges the original design of the Eurozone, which was intended for a monetary, but not a fiscal union. Eurozone member countries are not able to properly employ accommodative monetary policies to balance fiscal austerity measures.
One solution might have been to create a strong central bank backed by a common budget for the currency union. This would still have been problematic, since addressing regional issues with centrally directed monetary and fiscal policies seems impractical.
Impact on gold prices
Last year’s concerns over the United States’ debt ceiling and the Eurozone debt crisis drove gold sharply higher for much of the year even as they weighed on the euro. However, towards the end of 2011 gold behaved more like a commodity, tracking equities lower as risk appetite retreated and traders looked to liquidate positions to make margin calls.
Institutional support for gold spot market prices and gold equities in general
Suki Cooper, Precious Metals Analyst with Barclays Capital believes that gold prices will continue to trend higher over the short term, “we still believe the key factors behind gold rallies from last year have not gone away. We saw corrections last year that were led by technical reasons and by the need for liquidity and we expect those to persist in 2012. Real factors like low interest rates and the Fed pushing out its guidance for the next hike are still very positive for gold. Those macro factors are still likely to lead gold higher in our view.”
Sprott Inc. Chief Executive Officer, Peter Grosskopf sees a unique opportunity for growth in the global market with strong downside protection, “we see it as both a good defensive and offensive investment in this kind of environment. We see companies that could grow their earnings and cash flows substantially in the next few years. When we look at gold and silver stocks these days we see great share investments in that sector. On the other hand, if the crisis continues in Europe and if there is fallout around the world and fallout that we think eventually will affect the US markets gold is a great place to be in for the purpose of defense.”
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.