Gold, Metals Rising in Anticipation of Monetary Stimulus

on June 13 2012 5:21 PM
Gold Rises For 4th Day, Eyes Technical Resistance
Gold Rises For 4th Day, Eyes Technical Resistance. Reuters

Precious and industrial metals have been moving higher over the past few sessions in spite of fundamentals, suggesting commodities traders are loading up on the physical assets in anticipation of seeing at least one of the world's major central banks turn on the money spigots later this month.

With markets fixated on the macro picture at the moment, little attention is being paid to fundamentals -- particularly in platinum group metals (PGMs), Edel Tully, a London-based commodities strategist at Swiss investment giant UBS, wrote in a note Tuesday. Recent news flow hold opposing implications for PGMs ... but given the focus on Europe at the moment, we question just how much fundamentals are being priced in.

More specifically addressing precious metals like gold and silver, James Steel, New York-based analyst for British HSBC Securities wrote Monday that, while facing headwinds, a rally in gold had been at least partially fueled by attention to the U.S. deficit brought on by an S&P report.

A market reassessment of the S&P report may have led investors to diversify into alternative hard assets such as gold, in our view, Steel wrote in a June 11 after-market note.

The reports that gold and other metals are soaring on bad news is something that has been going on with some regularity since mid-May. After several months where the price of gold seemed to move mostly in tandem with other risky asset classes --  a correlation that was strongest during the second half of 2011 -- metals seem to have regained a bit of their safe-haven status as of late.

Part of the reason, analysts believe, is the expectation that further monetary stimulus from the world's leading central banks will prompt interest in bullion, as investors seek a hedge against inflation.

Currently, it is believed gold has a technical floor at around $1,600 per ounce.

Wednesday, the most widely traded contracts on gold in Chicago, for August delivery, settled at $1619.4 per ounce, a jump of $5.60 from the previous day's settle.