Gold Price Nears $1,700, Silver Surges

September 3, 2012 at 10:42


The price of spot gold and other precious metals surged on Friday and into Asian trading on Monday, after US Federal Reserve Chairman Ben Bernanke hinted at an additional round of quantitative easing, and said that the US central bank was closer to providing “additional policy accommodation as needed.”

Gold prices surged to a five-month high of $1,692.70 per ounce before pulling back slightly but still within striking distance of clearing the psychological barrier of $1,700, a level that hasn’t been breached since March 2012.

The precious metals markets – including gold, silver, palladium and platinum – took flight on Friday on remarks by Fed Chairman Ben Bernanke at a Fed symposium in Jackson Hole, Wyoming.

Bernanke’s dovish statements nicely set up a bullish trading tone for precious metals on the last trading day of August, with the Fed chief strongly hinting that fresh, unconventional US monetary policy stimulus will be implemented at some point.

While gold price shot up 2.2 per cent over Thursday’s close, silver in fact surged double that (4.4 per cent) to end the week at $31.68 per ounce. The white metal rose almost 14 per cent in the month of August while gold went up by more than 5 per cent in the month, suggesting a turnaround in the precious metals market.

In Friday’s comments, Bernanke said the “stagnation” of the jobs market was “a very grave concern” and promised that the US central bank “will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market conditions in a context of price stability.”

With the Fed chief calling current economic conditions “obviously far from satisfactory,” bullish analysts believe that he has set the base for announcing a third round of quantitative easing at the Fed’s next policy meeting on September 12-13. However, other believe that even if a decision on QE3 has been taken, it won’t be announced before November’s Presidential elections.

Fresh quantitative easing (QE3) means the US central bank will print more money to pump in the local market – something that will devalue the dollar in real terms while pushing up the value of US-dollar-priced commodities, such as oil and precious metals.

Closely on the heels of the Fed chairman’s comments, Federal Reserve Bank of Atlanta President Dennis Lockhart added that the likelihood of QE3 was a close call. “It’s a close call,” Lockhart said on whether the central bank should provide further stimulus to the economy, according to a report published on The Wall Street Journal’s website.

Most analysts believe that gold and other precious metals might keep trending higher or at worst sideways in the coming week unless some strong, fresh positive data signals renders QE3 unlikely. But with the prospects of QE3 brightening, traders believe that the additional money will find its way into precious metals investments, and therefore their price is bound to rise.

In the absence of concrete QE3 talk and in the light of some positive data earlier, traded in a range for four months until end-July, but galloped more than 5 per cent in the month of August.