Gold Prices Settle Higher, Gain 1% for the Week

Gold prices settled higher on Friday, posting second successive weekly gains as extremely dry weather in the Midwest region resulted in corn and sugarcane prices touching its record high, threatening inflation; while weak trade data from China also sparked some rally in bullion amid rising expectations of monetary easing from Chain’s central bank.

Earlier, on Friday, the U.S. government announced that the country is witnessing a severe draught this summer—a worst in more than last 50 years. As a result, food prices have been spiraling at a record pace. U.S., one of the world’s biggest producers and exporter of soybean and corn is expecting huge losses as unusually dry summer damaged crops.

On Friday, the futures on corn hit a record high before retreating somewhat. Already some of the other major agricultural products exporting countries such as Brazil and Russia are facing erratic climate. There is fear that falling production could once again stoke food price inflation—which in turn could benefit gold as its inflation-hedge appeal will burnish.

Besides, a data from China—the trade figures for July—pointed that country’s economy was struggling to keep up its momentum as global economic slowdown, more particularly the euro zone debt crisis shrunk China’s export and import orders for the period. Expectations are widespread that People’s Bank of China will swing into action by providing another round of monetary easing, aimed at boosting the economy.

Just a day before China’s factory output data and consumer price index also turned out weaker-than-expected.

Nonetheless, for the entire week the trading volume in gold futures was very low. The European Central Bank (ECB), although hinted at another round of bond buying program, stopped short of taking any action this week, prompting clueless investors to stay in sidelines. In the U.S., volume on U.S. gold futures was nearly 40-50% below the standard (30 days moving average) as bullion investors wait for the fed’s next meeting on August 31, in Jackson Hole, Wyoming.

A data provided by Reuters showed that trading volume on Friday was about 111,000 lots approximately 30% lower than 30 days moving average.

Spot gold inched higher 0.2 percent to close at $1,620.60 an ounce, having earlier touched its intra-day low at $1,605.20.

The SPDR Gold Trust (ETF) (NYSE: GLD) ended the day 0.15% higher at $157.22.

On weekly basis, the yellow metal gained 1% amid growing expectations of monetary easing from China’s central bank.

U.S. gold futures added $2.60 to settle at $1,622.80 an ounce.

Commenting over gold’s strong show this week, Jeffery Sica, chief investment officer at SICA Wealth Management, said to Reuters, “Gold is up mainly because of the weak manufacturing numbers in China, suggesting that there is a pretty strong indication we are going to see more quantitative easing there.”

However, Sica warned that gold prices could slide as the fed will be extremely cautious in providing another round of quantitative easing. This is because; soaring corn and soybean prices can result in inflation and the central bank, in an effort to keep control over the inflation might shove off its monetary easing plans.

In September 2011, gold touched its peak at $1,920 an ounce as deteriorating debt crisis in the euro zone, high commodity prices and expectations of monetary easing from central banks burnished the yellow metal’s safe haven appeal.

Moving onto some other precious metal markets, silver moved up marginally by 0.1 percent to settle at $28.12 an ounce.

Platinum edged down 0.7 percent to $1,395.64 and its sister metal palladium inched lower 0.1 percent to $580.22.

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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.