Investors want to know if this week's Jackson Hole, WY meeting of central bankers will result in further stimulus measures and a rally in gold prices – but they don't have to wait to know gold is headed higher in 2012.
Gold fought back from its Tuesday morning low of $1,659.10 an ounce after a read on consumer confidence showed sentiment dropped in August to its lowest level in nine months. Americans have become increasingly worried about their employment scenarios and the overall outlook on the sluggish U.S. economy.
"Bad news is good news for gold again," Charles Nedoss of Kingsview Financial told CNBC.
Gold for December deliverylost $5.90, or 0.4%, to end at $1,669.70 an ounce on the Comex division of the New York Mercantile Exchange – but the slip won't last.
"Before you know it, gold is going to push for the next level, somewhere above $1,700 an ounce," Michael K. Smith, president of T & K Futures in Florida, told MarketWatch.
Gold glistened last week on news of possible additional monetary intervention from the U.S. Federal Reserve.
Following the release of the Federal Reserve's minutes last Wednesday, gold prices climbed to a 16-week high on hopes the central bank may engage in a fresh round of monetary stimulus to give life to the besieged U.S. economy.
"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," according to the Federal Open Market Committee (FOMC) meeting minutes from July 31 – Aug 1.
Gold futures for December delivery hit $1,655.90 an ounce Wednesday after the 2 p.m. announcement, marking a then four-month high.
Gold prices continued the rally Thursday, gaining some $32.70 as the metal relished in renewed safe-haven buying. The precious metal was buoyed by an uninspiring manufacturing report from China revealing production fell to a nine-month low in August. The data suggested more action may be needed to boost the Asian nation's lackluster economy.
Now analysts see even more upside potential as the gold-price trend slopes upward. Deutsche Bank AG (NYSE: DB) expects U.S. and Chinese policy measures to support gold's growth over the next quarter or so.
More Easing Anticipated
Precious metal traders are betting Fed Chief Ben Bernanke will talk about monetary options this week at Jackson Hole. At 2010's annual symposium in Jackson Hole, Bernanke hinted at QE2, the Fed's $600 billion bond purchase program.
From the end of December 2008 through June 2011, gold soared 70% as the Fed maintained low borrowing costs and purchased $2.3 trillion of debt in two rounds of quantitative easing, dubbed QE and QE2.
The prospects for QE3 have been on and off the table for months as a spate of data revealed the economic recovery enjoyed in the first quarter of the year has stalled. Unemployment remains at an unhealthy level, the housing market remains weak, manufacturing data points to a slowdown and retail sales figures show consumers have become more cautious in their spending patterns. The dreary data has led more analysts to predict easing is imminent.
The Fed did not alter its policy stance at its last meeting, but repeated that it remains ready to help.
If more stimulus isn't announced at Jackson Hole, the Fed could wait until after Election 2012 to decide on its next move, but will likely hint at further measures in its meetings between now and November.
Gold Still an Inflation Hedge
Gold demand has also increased since more Fed action could weaken the U.S. dollar value.
"Gold is surging on renewed expectations of inflation rising after easing," Michael Gayed, chief investment strategist at New York-based Pension Partners LLC told Bloomberg News.
Expecting additional easing, and to hedge against inflation, the $20 billion PIMCO Commodity Real Return Strategy Fund has increased its gold cache. Its gold holdings have reached 11.5% of total assets from 10.5% just two months ago.
PIMCO fund manager Nic Johnson told Bloomberg, "We think gold is going to perform in a positive correlation to changes in inflation. We see higher inflation because of rising commodity prices, unconventional monetary policies and increasing sovereign debt."
As the European debt mess shows no clear signs of waning, and the epic drought in the Mid-West Corn Belt is causing food and oil prices to spike, gold's allure as an inflationary hedge has heightened.
The yellow metal remains well off its September 2011 peak of roughly $1,920, so it has plenty of room to run. Pullbacks should be used as buying opportunities.
"We are tactical and will look for attractive dips in prices to add to the fund's holding," said Johnson. A dip to $1,500, he noted, would spur more buying.
Gold prices pared some of last week's gains at the start of this week ahead of the Jackson Hole meeting. Bernanke will address the group Friday and precious metal investors are hopeful he will at least hint at more monetary easing.
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