Monday, September 10, 2012

Gold Extends Rally On Another QE Hopes – GLD, GG, PPP, ABX, KGC

Gold prices rose to a six-month high on Friday, hitting the mark of $1,730 an ounce after unforeseen weak non-farm payrolls data for August raised hopes of another round of quantitative easing.

The fall in the value of the dollar also helped in the yellow metal making gains.

On Thursday when data showed better-than-expected job related reports, relating to private sector jobs and unemployment benefits, there was speculation that monthly payroll data would also be strong.

However on Friday it was seen that the U.S. economy had only crated 96,000 jobs, much below analyst expectants of 125,000 jobs. The unemployment rate showed some contract at 8.1 percent, compared to 8.3 percent in July.

The weakness in the economy as shown by the poor job creation has led to hopes that the Federal Reserve will now resume its bond buying programme - also known as quantitative easing - and this was what spurred the rally in gold prices.

Quantitative easing is better explained as printing more currency to purchase government bonds and aims to keep interest rates low to stimulate borrowing and investment. The flipside of this is it leads to inflation, as the value of the currency falls. This benefits gold prices as it acts as a hedge against this inflation.

When the U.S. government executed QE1 and QE2, it led to a doubling in the price of gold.

Spot gold climbed 2.13 percent to settle at $1,737.26 per ounce, and U.S. gold futures jumped 2.01 percent to close at $1,739.8 an ounce having earlier touched $1,745— its highest since late February.

Since the beginning of August, gold has rallied 10 percent amid rising expectation of monetary easing from global central banks.

SPDR Gold Trust (ETF)(NYSEARCA:GLD) rose over 2%, Goldcorp Inc. (USA)(NYSE:GG) added +0.86 (2.04%), Kinross Gold Corporation (USA)(NYSE:KGC) climbed 0.53 (5.81%), Primero Mining Corp(NYSE:PPP) gained 0.22 (4.35%) and Barrick Gold Corporation (USA)(NYSE:ABX) added +1.16 (2.97%).

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