QE3 or Not, Gold Supported by Dire Outlook

The price of physical gold rose in Asian and London trade Friday morning, regaining half of this week's 11% drop from new record highs, before slipping back to $1768 per ounce.

Global stock markets fell, as did energy and most commodity prices, as the dollar rose ahead of Federal Reserve chairman Ben Bernanke's much-anticipated speech at the annual Jackson Hole central-banking conference in Wyoming.

Bernanke used this speech last year to signal the start of QE2, buying $600 billion of U.S. Treasury bonds in a bid to reflate risk assets and the economy.

Treasuries rose early Friday, pushing the yield on 10-year debt down to 2.19%.

"If the Fed moves to launch a further round of quantitative easing, gold will see little resistance in its summit of the highly psychologically significant threshold of $2000," reckons the latest Metals Monthly from the VM Group in London.

Reviewing recent U.S. data, "There have been few, if any other, times when the economic backdrop was more favourable for gold," says the report, produced for ABN Amro bank.

"With the impact of recent margin increases now absorbed," says one London gold and silver dealer in a note, "there is a sense that the slate has been wiped clean in readiness for Chairman Bernanke's speech this afternoon."

"Weak speculative longs have now been washed out," agrees Ole Hansen, senior manager at Saxo Bank, "and the [gold] market is settling down for Bernanke.

"QE3 or no QE3, it does not alter the near-term dire prospects for economic activity and worries about the health of the banking sector and government debt."

Gold prices "are likely to regain some strength over the coming weeks while the macroeconomic environment remains supportive," says Swiss refinery MKS's finance division.

Early Friday in Asia—source of 65% of world gold demand each year—Hanoi gold prices leapt ahead of international prices yet again, widening the premium in Vietnam's tightly-regulated gold market to $59 per ounce.

Tokyo gold futures also rose, regaining 1.6% even as the Yen rose back towards last week's three-decade highs to the Dollar.

A chart in the VM Group's new Metals Monthly report shows trading on China's Shanghai Gold Exchange leaping 7-fold between July and August to nearly 100,000 lots per day.

"I've said for a long time that gold would reach $2,000 by the end of this year and I don't see any reason why it should go down," said gold mining chairman Peter Hambro of Petropavlovsk to Reuters on Thursday.

"It could be $2,500 by the end of next year."

French bank BNP Paribas and Australasia's ANZ today both raised their gold price forecasts for 2012 to $2080 and $2200 respectively.

Swiss bank UBS this week hiked its 3-month forecast to $2100 per ounce.

Adrian Ash
Bullion Vault

Gold price chart, no delay

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is head of research at BullionVault—winner of the Queen's Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body—where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

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