Saturday, June 30, 2012

Gold Poised to Jump on Stimulus Hints

Gold and commodity prices soared Friday as European leaders announced they're going to recapitalize the banks in the region, although specifics of the deal weren't revealed.

In response, gold futures for August delivery climbed $53.80 to settle at $1,604.20 an ounce on the Comex division of the New York Mercantile Exchange. Silver prices also soared, jumping $1.32 to settle at $27.61.

While it help prop up the markets in general, it also did with gold as well, as it basically supports the premise there will be much more stimulus going forward; presumably with a big dose coming sometime soon in the euro zone.

The announcement by the Federal Reserve that it would keep interest rates low through 2014 and continue on with its "Operation Twist," also teases and sends a signal to the markets that there will inevitably be more stimulus from that source as well.

With the EU, euro and euro zone fighting for its very survival, there isn't even a question as to whether or not there will be a stimulus, it's only a matter of when and how much.

For the United States, it's pretty much the same situation in the sense of slowing growth, and the Federal Reserve has stated it's ready to act in response to negative economic conditions, which are in fact already upon us, as growth rate estimates in the U.S. have been recently lowered.

The central bank cut its estimate for the 2012 gross domestic product growth to 1.9 to 2.4 percent, from 2.4 to 2.9 percent in April. Estimates for 2013 were lowered to 2.2 to 2.8 percent, compared to 2.7 to 3.1 percent in the prior projection.

All of this refers to speculation by the market that more quantitative easing is coming, and that will continue to provide support for gold, which already got a boost with the news out of the EU.

One major result from all of this will be for the euro to strengthen against the U.S. dollar, which will also provide impetus for the price of gold and other commodities to rise.

Pressure is mounting for stimulus action, and for better or worse it's going to come. The market is ready to reward gold and silver when that happens, as evidenced by the huge price increase on just a little good news from that point of few. What's going to happen when full-fledged stimulus is put into action again; especially when more than one part of the world does it? Friday's response by gold and silver prices give us a glimpse into what that will be.

Barrick Gold (NYSE: ABX) closed Friday at $37.57, rising $1.34, or 3.70 percent. Goldcorp (NYSE: GG) ended the session at $37.58, up $1.48, or 4.10 percent. Newmont Mining rose $1.39, to close at $48.51, gaining $2.95 percent. SPDR Gold Trust (NYSEARCA:GLD) ended the day at $155.19, up $4.14, or 2.74 percent.

iShares Silver Trust (NYSEARCA:SLV) soared $1.02, gaining 3.98 percent to close at $26.65. Silver Wheaton (NYSE: SLW) exploded $1.35, jumping $5.30 percent, to end the day at $26.84. Endeavour Silver (NYSE: EXK) closed the day at $8.12, up $0.33, or 4.24 percent.

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