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Gold Dips from High as Fed-Inspired Rally Slows

August 24, 2012 – Gold prices relaxed a bit on Friday in the midst of a decreased appetite for higher-risk assets and as the dollar firmed, a prompt for investors to cash in the gains made on the seven-straight session rally in gold to 4-1/2 month highs. Gold is on track still for its biggest weekly rise since early June.

Platinum looked locked in for a second strong week of gains, a gain of 5 percent on the week and nearly 9 percent on the month, following a further outbreak of violence at a platinum mine in South Africa, the site of around 80 percent of the annual supply of the metal.

The spot price of gold has gained more than 3 percent this week following the minutes of the Federal Reserve’s August policy meeting indicated the bank is likely to embark on another round of quantitative easing as members suggested that, absent positive economic data, stimulus would be necessary “fairly soon.”

Stimulus benefits gold as the sudden boost of liquidity keeps long-term interest rates low and fuels fears of inflation down the line. The first two rounds of quantitative easing in the US are taken as the partial justification for a doubling in gold prices in the last four years.

The news of fresh stimulus provided the boost necessary to lift gold out the $100 range-bound trading that the market has been mired in since mid-May. Gold also soared above its 200-day moving average for the first time since March. The current downward dip is considered by many analysts to be just a retracement.

As the necessary signals have been released by the Fed, the market will now await a confirmation with weaker than expected economic data making the situation more tense, according to Pradeep Unni with Richcomm Global Services.

Unni adds that the next price breakout level for gold bulls is above psychological resistance at $1,700 per troy ounce. He sees short-term resistance at $1,678.60 and then at $1,687.40.

The spot price of gold was down 0.2 percent to $1,666.11 per troy ounce while US gold futures for December delivery were down $4.00 per troy ounce to $1,668.80.

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