Gold Price Today Sees Modest Gains - Higher Move on the Horizon

By Diane Alter, Contributing Writer, Money Morning • February 4, 2015

The gold price today jumped $10, or 0.80% to $1,271 an ounce in morning trading. The gains came despite typical headwinds for the yellow metal: a stronger dollar and slipping oil prices.

The yellow metal gave back some of those gains in the afternoon session. Just before 1 p.m., gold was hanging on to a $2.70 rise at $1,263.80.

This follows gold's sharp decline on Tuesday. Gold slumped $18.80, or 1.3%, yesterday as investors' appetite for riskier assets, including stocks, increased. The Dow Jones Industrial Average added $305.36, or 1.8%, Tuesday as oil continued to march over $50 a barrel.

There were three factors boosting gold prices today:

• The Chinese New Year: TD Securities said in a report released today that gold prices are up in China. That trend is expected to remain in place ahead of the Chinese New Year, which begins Feb. 19. Gold is frequently given as a gift during the festivities. "We could very well see $1,300 gold in the coming weeks," Steve Scacalossi of TD Securities, wrote in the report.

• China's Central Bank: The People's Bank of China eased its monetary policy Wednesday. It trimmed the reserve requirement ratio for domestic banks by 50 basis points to 19.5%. It's the PCOB's latest move to goose China's slowing economy. China's economic growth slowed to 7.4% in 2014, hitting a level not seen in a quarter century and firmly marking the end of a high-growth heyday. The move is also bullish for gold, as well as the overall commodity sector. China is a major raw commodity importer and consumer.

• Increasing Imports in India: India imported nearly 50% more gold in the first 10 months of its current fiscal year than the year before, up to 945 tons already. The import surge came after India's government eased curbs on how much gold was allowed in to the country. India's gold import totals are the second largest in the world, behind only China. India accounted for 25% of global gold demand in 2013, according to the World Gold Council. "Imports may be around 1,000 tons this fiscal year and remain stable next year unless we see any fresh government regulations coming in," Madhavi Mehta, an analyst at Kotak Commodity Services, told Bloomberg.

Gold Price Update for 2015

Investors have piled into gold in 2015. Interest has sent the yellow metal up 6.4% a little more than a month into 2015.

That's comfortably above year-to-date gains for the Dow, S&P 500 Index, and the Nasdaq. The three major benchmarks all ended January in the red, off 3.69%, 3.1%, and 2.13%, respectively.

What's pushing investors to gold are worries over Greece's economy and the effects of larger than expected QE out of Europe. The European Central Bank (ECB) recently began plowing billions of euros into the Eurozone financial system. Yet, many doubt the move will work.

"I don't think QE will work as well in Europe as it did in the U.S.," legendary bond expert Bill Gross told the Financial Times. "There are only a limited amount of securities to buy and interest rates are now so low that it's not necessarily the case that (banks will use) the month to invest in the real economy. I do wonder if much good can come of it."

But the move is good for gold. QE devalues currency and eventually leads to inflation. Inflationary pressures move interest rates, and gold is a good crisis hedge that is correlated to interest rates.

Gold will likely see some action again later this week when the jobs report comes out. The U.S. Department of Labor releases the January jobs report Friday, Feb. 7, at 8:30 a.m. A strong jobs report could stoke more discussions about a sooner-rather-than-later interest rate hike from the U.S. central bank.

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Related Articles:

• Financial Times: Bill Gross Says European QE Is "Too Little, Too Late"
• Kitco: We Could See $1,300 Gold in Coming Weeks-TD Securities
• Bloomberg: Gold Imports by India Said to Surge This Year as Curbs Scrapped