Gold has fallen more than 1 per cent, after investors mostly encouraged by recent stimulus measures by central banks pushed prices to the highest level in nearly seven months last week. Despite the fall, market participants remain bullish on the precious metal, which tends to benefit from easy monetary policy.
A stronger US dollar also weighed on prices of commodities priced in USD, making them less attractive to buyers holding other currencies. Other precious metals also weakened. Spot platinum dropped 2 per cent to $US1603.5 an ounce and spot silver fell 1.9 per cent to $US33.78.
Investors flocked towards gold after the US Federal Reserve announced a fresh round of quantitative easing earlier this month. Speculators raised their net long positions in US gold futures and options to 178,426 contracts in the week ended Sept. 18, the highest level in nearly seven months.
In Europe, Spain is considering freezing pensions and speeding up a planned rise in the retirement age as it races to cut spending and meet conditions of an expected international sovereign aid package. Announcements on Friday that Spain does not need a European bailout doused financial market expectations that Madrid would gain early relief from European Central Bank bond-buying.
All of these variables led to the pulling back of gold buying last Friday into today. However, the fundamentals are strong for gold to continue its run and surpass its all-time high.
September is historically the strongest month of the year for the price of gold. Precious metals typically receive a boost from various global holidays in the late part of the year. However, gold and silver are currently receiving additional strength this year as fundamental and technical catalysts align at the same time.
Since 1980, the price of gold has increased an average of 1.7 percent during September. Over the past five years, it has performed even better, climbing an average of 2.8 percent. Holidays such as Ramadan, India’s post-monsoon wedding season, Diwali, Christmas and Chinese New Year all offer support to precious metals as we near the end of 2012. Additionally, central banks are flooding the world with liquidity and making hard assets look even more appealing to own.
Corolla Financial analysts believe that Gold’s current retreat is nothing more than a blip inspired by a few short term market stimulants that led many investors to pull back last Friday. This blip will likely correct itself early this week and reach a new annual high by weeks end. Don’t be surprised to see gold surpass $1800 before the end of the month.