Gold Tops $1,700, Albeit Briefly

September 5, 2012 – Gold futures moved above the psychologically important $1,700 per troy ounce resistance line in intraday trading for the first time in five months amid poor U.S. manufacturing data that has given traders and analysts more reason to expect fresh stimulus measures from the Federal Reserve.

The front-month September contract gained $8.30, 0.5 percent, to $1,692.90 per troy ounce on the Comex division of the New York Mercantile Exchange. This constitutes the highest settlement since $1,694.20 per troy ounce on March 13. The most-actively traded contract, the contract for December delivery, gained 0.5 percent or $8.40, to settle at $1,696 per troy ounce.

The Institute for Supply Management said its manufacturing-purchasing-managers’ index dropped to 49.6 in August from 49.8 in July. Any number below 50 indicates contraction and the August reading is the lowest since July 2009.

The ISM numbers provides further strength for the case of the Fed implementing new stimulus measures, according to Edward Meir, an analyst with INTL FCStone. Remarks from Ben Bernanke, Chairman of the Federal Reserve, Friday in Jackson Hole, Wyoming, indicate the central bank is ready and able to initiate new stimulus measures.

Precious metals, in Meir’s analysis, are much more sensitive to the notion of quantitative easing, reacting more quickly and strongly than even other commodities.

Quantitative easing measures increase the amount of cash in the financial system and boost precious metals as traders who are seeking to curb inflationary risks with hard assets rush into the market.

A denial of easing measures by the Federal Reserve is regarded as a partial contributory reason for the price of gold dropping below $1,700 per troy ounce.

The year-to-date peak of $1,788.40 per troy ounce was reached on February 28. Since that time, gold has dropped 4.3 percent. The drop initiated a day after Mr. Bernanke didn’t indicate any fresh stimulus during a Congressional testimony. Both the Federal Reserve and the European Central Bank disappointed bullish gold investors in the following weeks by avoiding stimulus actions.

Bob Haberkorn, senior commodities broker with RJO Futures in Chicago, sees prices climbing. He believes the current attention now being paid to gold at the $1,700 per troy ounce mark will be moot by next year. In his analysis, the way things are going at the moments we’ll be discussing the good old days when gold was trading at $1,700 per troy ounce.

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