Those who trade gold caused the precious metal to rise to its highest level in three months on Feb. 12, bolstered by hopes that the Federal Reserve will reduce its current regimen of bond purchases gradually.
April gold rose to as much as $1,296.40 per ounce on the Comex division of the New York Mercantile Exchange, according to Bloomberg. This represented the highest value for the futures contract since Nov. 8. April gold later pared these gains slightly, settling at $1,295 an ounce at 2:12 p.m.
Spot gold also appreciated, rising to $1,294.75 per ounce, Kitco News reported. This price was reached as a result of the contract increasing by $3.30 an ounce during the session.
Yellen testimony key to gold appreciation
These gains happened the day after Janet Yellen, who recently took over as the chair of the Federal Reserve, told Congress in testimony that she plans to reduce the central bank’s bond purchases in “measured steps,” the media outlet reported.
The Fed has managed to increase its balance sheet to more than $4 trillion over the last several years, and purchased $85 billion worth of debt-based instruments every month between late in 2012 and January of this year.
Fed recently started tapering stimulus
The Federal Open Market Committee announced definitive plans to reduce this stimulus at the conclusion of its December meeting, indicating that, starting in 2014, it would cut these transactions to $75 billion per month. At the end of the policy meeting that the Fed held in January, it was announced that in the following month, this pace would once again be cut to $65 billion.
Gold prices were thought to receive support from the statements that were provided by Yellen in her testimony, according to Kitco News. This gave market participants the impression that, thus far, her policy decisions have mirrored those made by Ben Bernanke, the former chair of the Fed. The inaugural testimony that she gave to Congress has also created quite a stir among market participants such as investors and traders.
“Yellen has indicated the Fed will remain supportive to prop up the labor market,” Scott Gardner, who works for Verdmont Capital SA in Panama City and contributes to the management of $400 million, told Bloomberg. “This is definitely helping gold, and we are seeing both gold and equities rally on that.”
Gold starts 2014 strong
Those who trade gold have caused the precious metal to surge 7.7 percent so far this year, the media outlet reported. Robust physical demand is one factor that contributed significantly to this appreciation.
The strong returns that gold has enjoyed so far in 2014 represent a strong contrast to what the precious metal did last year. In April 2013, the commodity fell into a bear market, having lost more than 20 percent of its value since reaching an all-time high of more than $1,900 per ounce in 2011.
The precious metal then continued this slide, falling to less than $1,200 per ounce in June of last year. As a result, gold dropped to its lowest value in almost three years. The precious metal then experienced some gains in the remaining months of 2013. However, this recovery did not prevent the precious metal from finishing the year down almost 30 percent.
One major factor that was cited as pushing the price of gold lower was global investors losing faith in the metal. However, some market experts have recently provided bullish predictions for the commodity. One of these individuals is Julian Jessop, head of commodities research at Capital Economics, MarketWatch reported.
“The recent partial recovery in the price of gold vindicates the cautiously positive view we have held since the slump in the first half of 2013,” Jessop wrote in a note on Feb. 12, according to the news source. “We continue to expect further gains over the course of the year.”
While he provided his prediction that the price of the precious metal will rise, he said that the chances that the precious metal will once again rise to the level of more than $1,900 per ounce that was reached late in 2011 are rather low, the media outlet reported. The market expert also warned that as the U.S. economic expansion accelerates, gold prices will lose a powerful source of support.
It was noted by another market expert that global market participants have been assessing not only economic growth in the U.S., but also the expansion that happens on a global level, according to Bloomberg.
“People have been reassessing global growth, and this year we have seen some money flow into gold,” Quincy Krosby, who works for Prudential Financial Inc. as a market strategist, told the news source. “It’s too early to say that it’s a turning point.”
In the event that the recent inflows that the precious metal has been enjoying are indicative of a broader trend, it could result in those who trade gold pushing the commodity significantly higher in value.
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