kBy Dave Brown – Exclusive to Gold Investing News
Spot market gold price climbed 2.5 percent to $1710.80 per troy ounce on Wednesday, its highest trading session growth in four months, as the Federal Reserve in the United States signaled that the interest rate environment would likely stay near zero for the next two years. Gold investors acted strongly on the news, accumulating gold positions based on risk that portfolio values will contract. Currency depreciation would follow as global central banks are expected to use quantitative easing and accommodating monetary policies to create liquidity to stimulate the distressed economies.
Aaron Regent, Chief Executive Officer at major gold producer Barrick Gold Corp. (TSX:ABX) discussed the impact of the development with CNBC, “clearly what is happening right now and what has was seen yesterday with the [Federal Reserve’s] move, is that central banks have continued to have very accommodative policies and that tends to be very good for gold [price].”
The gold price appreciation easily eclipsed smaller gains in equities as the Federal Reserve news confirmed the sentiment that the rate of economic recovery in the United States remains slow. Other precious metals followed the lead from gold prices, as silver spot market prices jumped more than 4 percent to $33.27 per troy ounce, while the broad United States equity market benchmark, the S&P 500 index, increased less than 1 percent. Platinum prices rallied 2 percent to close at $1,581.00 per troy ounce, while palladium prices increased 2 percent to $691.00 per troy ounce.
Eyes on Europe
Gold market participants will also be paying keen attention to the World Economic Forum in Davos for any news developments out of Europe and progress on the Greek sovereign debt crisis. The major topic on this year’s meeting agenda reflects the requirement of an intense overhaul of a fraying global financial system and prolonged economic malaise.
The four topics of discussion mirror the interrelated structure of challenging solutions. The most interesting theme for gold investors is concerned with sustainability and resource models; however, the others will all be of interest as well. There is expected to be a strong focus on risk management and mitigation, with dedicated discussion investigating the themes of the Global Risks 2012 report.
Since late last year gold price has been strongly correlated with the trading range of the euro. Based on the news yesterday from the Federal Reserve the euro climbed less than 1 percent from the previous close. Gold investors may also follow the positive results of the Italian debt auction from earlier in the day.
Analyst remains bullish on gold prices with sustained demand from Asia
John Meyer, Head of Resources at Fairfax IS told CNBC about “further liberalization and stimulation of the gold sector within China. They did cut back the number of exchanges, the informal exchanges, but they are encouraging the Chinese people to buy physical gold and to keep that in accounts within official Chinese banks. There is a lot more demand to come out there and I think we will see resurgence of demand out of India as well.”
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.