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Gold Advances, NY Factory Slump Signals More Fed Stimulus

December 18, 2012 - In late trade yesterday, U.S. gold futures for February delivery gained a modest $0.80 to $1,697.80 per troy ounce during a quiet, pre-holiday session in which the price of gold steadied. The spot price of gold came in a slight $0.40 higher to $1,697.00 per troy ounce. March Comex silver shed a very slim $0.034 to $32.265 per troy ounce.

Partially driving the advance in gold futures is a report showing manufacturing in the New York area contracting more than expected, which has increased expectations for stimulus from the Federal Reserve.

The Federal Reserve Bank of New York’s general economic index dropped to minus 8.1, a wider margin than the minus 1 median forecast in a Bloomberg survey of economists. Last week, the central bank pledge to buy an additional $45 billion a month of Treasury securities beginning in January, expanding the current asset-purchasing program which is pumping $40 billion per month in to markets until the unemployment rate in the U.S. falls below 6.5 percent.

Matt Zeman, a strategist at Kingsview Financial in Chicago, said we’re seeing a knee-jerk reaction to the factory data. He added the thinking is that this lays the groundwork for even more Fed action.

Bloomberg also reports that gold declined for a third day before steadying as the dollar’s strength put a dampener on demand for alternative investment and countered record investor holdings in exchange-traded products. The U.S. dollar has been at multi-month highs against the euro, with a slight ease arriving only recently. A strong dollar makes the purchase of gold more expensive for holders of foreign currency, impacting the physical demand in the market.

Recently, the strong dollar has also been a contributory factor to a sales surge in American gold and silver coins. Following the Presidential election, sales of American Eagle Gold and Silver Coins surged with gold coins jumping 130 percent in the month of November. American Eagle Silver Coins year to date have reached 33,510,500 ounces, only the third time since the coin’s introduction in 1986 for sales to surpass the 33,000,000-ounce level.

Concern over the fiscal cliff and the financial climate continue to fuel gold and silver coin and bullion sales. The recent data from the New York manufacturers, which suggests more fiscal stimulus, will also bolster the demand for physical gold and silver bullion.

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org

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