Stock Market Watch

Gold Prices Settle Higher

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Extending its 2% rally from preceding session, gold prices inched up towards six month-high level on Friday as fear of rising inflation in the environment of low interest rates and excessive currency printing  prompted investors to shovel towards inflation hedge assets.

Gold has now posted four successive weekly gains after central banks around the world adopted bolder steps to shore up sagging global macroeconomic environment. Since August, gold prices jumped nearly 10%, just short of its yearly high of $1790, hit in February.

Commenting over yellow metal’s spectacular rally, James Steel, a metal analyst at HSBC, wrote in his research note, “For gold prices to have extended gains even further, without the usual ‘buy the rumor, sell the fact’ pullback, is impressive.”

According to Steel, this rally will go on due to Fed’s open ended nature of its latest bond buying program. The Federal Reserve in its latest policy statement released on Thursday said that central bank would buy mortgaged backed bonds up to $40 billion every month, for unlimited period of time, provided the inflation remains under control. Besides, it also pledged to keep base rate at near zero levels until 2015.

Spot gold inched up 0.2 percent to settle at $1,770.20 an ounce, having touched an intra-day high of $1,777.51 an ounce.

U.S. gold futures for December delivery gained 60 cents to close at $1,772.70 an ounce. Speking to Reuters, Jonathan Jossen, a floor trader at COMEX gold options, said trading activities in COMEX gold options was above normal for a second straight day, and funds were buying gold call options and other bullish plays right through the session.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.27% higher at $171.80.

Meanwhile, in some other metal markets, silver fell 0.2 percent to end the day at $34.58 an ounce. Platinum gained 1.7 percent to $1,705.25, while palladium climbed 1.5 percent at $693.97 an ounce.

Supply chain concerns for platinum continued to weigh on speculators mind. South Africa, world’s biggest platinum producer, accounting for 80% of the total global platinum production has been marred by labor unrest, strikes and widespread violence for past few weeks. Platinum mostly used as auto-catalyst had very lackluster due to sluggish demand from automobile industry, especially from the Europe. However, with platinum production slowing down due to labor unrest in South Africa and latest economic indicators from China indicating that auto sales jumped sharply in August, the metal prices could witness some sharp rally.  Platinum leaped 8% in the week ended September 14.

But where is gold heading?

While quantitative easing from the Fed and monetary easing from the European Central Bank (ECB) (recently announced unlimited short term bond purchase program) could push the metal above $1,900 level, some analysts are doubtful over metal’s further rally.

“When multiple major central banks are coordinating their effort in printing more money and engaging in stimulus measures, that has to be overtly bullish for gold,” warned  Adam Sarhan, chief executive of Sarhan Capital, as he spoke to CNBC-Reuters.

UBS gold strategist Edel Tully believes that the yellow metal is likely to face stiff resistance in the band of $1,790 and $1,803—highest levels from February and November, respectively.

Moreover, an empirical study from Reuters also suggests that yellow metal’s performance tends to diminish during every quantitative easing from the Fed; and it (QE) usually takes more than a year for the desired results to take effect.

 

 

 

 

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edliston
Post Written By: Ed Liston
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing in his yacht.

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Ed Liston

Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications. He is widely quoted in various financial publications on the Internet. When Ed is not writing about stocks, investing in stocks, talking about stocks, or otherwise doing something stock related, he likes to go sailing and fishing.

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