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Gold Price Today – demand fundamentals still in place
Friday’s PM gold fix of $1576 (£1007, 1296 euros) per Troy ounce was the 10th week that Friday’s gold fix prices have alternated between up and down since week ending 11th May 2012.
As we mentioned a few weeks ago, the gold price is stuck in a range of $1555 – $1635 and that range is contracting as it fails to break through $1600 in the near term. It is one of the tightest weekly trading ranges that the gold price has seen since the beginning of the bull run.
“Daily momentum is flat” Tim Riddell, ANZ Bank head of global markets research, notes.
For pound sterling and US dollar investors the gold price is the same that it was two months ago.
The SPDR Gold Trust (GLD) gold holdings dropped to a six month low this week (1257 tonnes).
Yet despite the above we’re convinced the gold price can run further…
Two main drivers of demand for the gold price remain. Inflation and the US Dollar trade deficit.
In the UK we’ve seen a reversion to Quantitative Easing, with the latest £50m spending adding to the pot of debt that is continuing to mount. And whilst unemployment has reduced according to figures from the ONS, and CPI inflation has also been reduced the picture remains bleak. Both the National Institute of Economic and Social Research and the Royal Bank of Scotland predict that Wednesday’s second quarter GDP figure will come in at around 0.2%. This will signify a triple-dip headline from the mainstream news outlets.
In the UK inflation has been eating away at the pile of debt that the government has accumulated. There’s still a war being waged amongst the string pullers of currencies to devalue their currencies, increasing the attractiveness of labour, increasing demand for exports and ultimately decreasing the level of debt governments have built up.
“About 12% of the value of the (government) debt has been wiped out by inflation (£132 billion) over the past 3.5 years)”
Market Oracle – Nadeem Walayat
The US dollar
In the recent World Gold Council overview they cited the ongoing troubles that the US Dollar continues to have, notably the US debt ceiling and the huge budget deficit. Despite the eurozone crisis taking the attention of investors away from these issues it remains something that will need to be addressed.
“The flight to the US dollar as a safe-haven in the first half of 2012 could be reversed. The US debt ceiling debate in Q3 and federal elections in November, followed by the necessity to confront a US$1.3tn budget deficit will prove challenging to the US dollar. With most currencies under pressure in one form or another, gold is likely to provide a hedging mechanism for investors.”
As the markets play out, and the gold price continues to trade in a close range, none of the fundamentals for gold’s demand has really been addressed. Movements in the gold price are often through leaps rather than slow incremental growth. Governments continue to pursue inflationary measures and eventually the US dollar’s woes will have to be addressed. Until then it will be a game of patience.
Gold Price Today
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Information in Gold Price Today is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
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