Gold prices are set for a 12th consecutive year of gains despite posting the largest quarterly drop since 2008 in the second quarter, a view likely shared by the World Gold Council, and billionaire investors George Soros and John Paulson.
Slowing economic growth in almost every corner of the world, the unfolding euro zone sovereign debt crisis and the looming fiscal cliff in the U.S. has spurred speculation of more easing from the central banks.
Further monetary easing -- printing money to buy bonds -- would increase liquidity while maintaining pressure on long-term interest rates and sparking fears inflation could rise in the longer run. All these factors support the gold price.
Investors, speculators, traders and fund managers alike are hoping that the European Central Bank could launch extraordinary measures to tackle the euro zone debt crisis and support its ailing economy.
They'll also be glued to their flat screens on Aug. 31, when the Federal Reserve Chairman Ben Bernanke speaks in Jackson Hole, Wyoming. Many analysts expect Bernanke to discuss policy options during the speech.
Whenever Bernanke opens his mouth, the market moves accordingly.
The Fed Chairman's testimony before Congress on Feb. 29 had a major impact on the gold price. Whether or not he meant to have one, it did.
Gold futures, which were up about 13 percent on the year at that time, fell as much as $100 to below $1,700 an ounce, after Bernanke failed to offer an indication of further quantitative easing, boosting the dollar and pressuring dollar-denominated gold.
"Since then, we've seen the market move around with positive or negative statements about quantitative easing in Europe, in the U.K. and in the U.S.," said Marcus Grubb, managing director at the World Gold Council.
Gold hasn't moved above $1,680 an ounce since the second quarter started, but it also hasn't dropped below $1,527. The average gold price at $1609.49 an ounce was still 7 percent above the average second-quarter price in 2011.
The most actively traded gold contract, for December delivery, rose $4.20, or 0.3 percent, to settle at $1,606.60 a troy ounce Wednesday on the Comex division of the New York Mercantile Exchange.
"The lack of a clear price trend generated a mixed response among gold consumers, particularly in the investment arena," according to WGC's second-quarter Gold Demand Trends report released Thursday. "While some investors used this pause in the price to add to their investments, others chose to liquidate and realize profits on their holdings until a stronger price trend re-emerged."
Sentiment in the gold market received a boost on Wednesday from the news that hedge funds founded by John Paulson and George Soros both increased their gold holdings during the second quarter.
A regulatory filing shows that John Paulson's Paulson & Co. Inc. lifted its stake in SPDR Gold Trust (NYSEARCA: GLD), the world's largest exchange-traded gold fund, by 26 percent in the second quarter for the first time since the first quarter of 2009. After selling other stocks during the second quarter, Paulson was left with more than 44 percent of his U.S.-traded equities tied to gold.
Similarly, George Soros' Soros Fund Management LLC more than doubled its stake in SPDR Gold Shares, according to a filing, to the highest level since the end of 2010. The hedge fund held 884,400 shares, valued at $137.3 million at the end of June, from 319,550, or $51.8 million, the previous quarter.
"There are many key events coming up in the second half of the year that are very relevant for asset markets and the gold price," Grubb said. "That's why large investors have increased their holdings."
Related: SPDR Gold Trust (NYSEARCA:GLD), Market Vectors Gold Miners ETF (NYSEARCA:GDX), iShares Gold Trust ETF (NYSEARCA:IAU), Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), Goldcorp Inc. (NYSE:GG), Barrick Gold Corporation (NYSE:ABX), Kinross Gold (NYSE:KGC), Agnico-Eagle (NYSE:AEM), IAM Gold (NYSE:IAG).