Gold prices slid 23 percent this year through July 19, wiping $59.4 billion from the value of gold exchange-traded product holdings, after some investors lost faith in the metal as a store of value and amid concern that the Federal Reserve may slow the pace of the stimulus.
Gold Rises Above $1,300
But today, gold rose above $1,300 an ounce to a one-month high on speculation that the Federal Reserve will maintain U.S. economic stimulus, boosting the appeal of the precious metal as a store of value. Silver also surged.
If prices close around this level, that will mark the highest settlement for a most-active contract since June 19, according to FactSet data.
Federal Reserve will maintain U.S. economic stimulus
Bullion rose 1.3 percent last week, capping the first back-to-back weekly gains since May, after Fed Chairman Ben S. Bernanke indicated that it’s too early to decide whether to begin scaling back bond purchases in September. Existing home sales in the U.S. fell 1.2 percent in June, the National Association of Realtors said today.
“Bernanke’s statement has a put a bid under gold,” Bart Melek, the head of commodity strategy at TD Securities in Toronto, said in a telephone interview to Bloomberg. “Also, the weak housing data confirms the fact that stimulus is here to stay for some time.”
Commodities including gold that are priced in dollars can benefit when the greenback declines, as the resources become less expensive to buy for holders of other currencies. The greenback lost more ground after the National Association of Realtors said U.S. June existing home sales on a seasonally adjusted basis fell 1.2% to an annual rate of 5.08 million. Economists polled by MarketWatch expected a 5.28 million rate.
Expectations for more demand from China
Also helping to support prices for the precious metal was Friday’s news that China will scrap all controls on lending interest rates and let financial institutions set rates by themselves.
Essentially, the country’s central bank removed a “floor” from banking lending rates but didn’t remove the “ceiling” from bank deposit interest rates, said analysts at BullionVault in a note Monday.
“China’s households are the world’s second-heaviest gold buyers, if not the first in 2013 as India restricts imports,” they said.”Borrowing money is now cheaper, but savers won’t be rewarded.”
Institutional investors coming back
“Heavy support for gold from the institutional buyers continues,” RBC Capital’s George Gero writes in a client email this morning. As he continues: “The signs of funds buying in gold were higher volume, higher open interest, higher moving averages, higher lease and lending in Europe resulting in backwardation of forwards, and now we have few sellers except mining hedges as we look to option expiration near end of the week.”