December gold futures scored a new high again early Wednesday morning, in the wake of news that yet another central bank announced added additional stimulus. This time it was the Bank of Japan announcing that it will add 10 trillion yen, or in U.S. dollar terms, $ 126.7 billion in response to a slowing economy.
BOJ JOINS THE PARTY
This is the fourth country or central bank in recent weeks to announce such stimulus plans to re-invigorate economic slowdowns domestically and globally. There are various risks to this economic game plan to artificially jump start stagnant economies, which include potentially devaluing currencies.
This issue has been evident and you don’t have to look any farther than here in the U.S., as the dollar has been under assault in recent years due to the Fed’s stimulus efforts. As a consequence, this may have caused precious metals and energies to have gone bid, where dips continue to be buying opportunities rather than rallies consistently being sold into. In the cash market, consumers continue to pay the price at the pump and at the grocery store.
LOOKING AHEAD
Gold, for instance, traded up to $1,923 an ounce late last summer, which may have been caused by stimulus efforts by the Fed, ECB, and the Bank of China. The question is what’s changed going forward and where is gold headed in the near term and through the remainder of 2012?
$1,800 HOP SKIP AND A JUMP
I believe we will see a test up to yearly highs at or near 1800 by the end of this week or early next week. I think that these highs will be hit before end of month and end of third quarter profit taking comes in, as funds may take profits for various reasons, including but not limited to paying bonuses and showing profits for their clients.
As we enter the fourth quarter, besides being bombarded by news on the U.S. Presidential election, the term fiscal cliff will also be dominating headlines. If we see more political in-fighting, which in my view is almost a sure thing in debates to extend the debt ceiling, Gold’s status as a safe haven for investors, in my view, will increase.
The oncoming year end spending cuts, along with a rise in taxes, could have a European type problematic feel and have investors running into safer havens. We have seen the result of past stimulus potential impacts on commodities like gold, and it is my view that traders will refrain from being short the market for any extended period in the fourth quarter.
LONG TERM BUY
The Fed announcing another round of QE and continuing a bond buying program until unemployment reaches levels below seven percent is a long way off in my view. I believe the heat will remain on the greenback to the downside, making gold a buy in the long term as well.
Is going to the gold standard a good idea? Read about it here.
