Gold prices surge to two-month high after strong weekly gain

TradingPub Admin | August 19, 2013

Responsive image

The price of gold surged to its highest level in two months on August 19, after the metal experienced a strong gain the week before.

Spot gold had a good day, rising to as much as $1,384.10 per ounce, according to Reuters. In addition, the precious metal has enjoyed gains in many recent sessions. In the last nine trading days, it has surged 8 percent.

Strong price gains
This comes after the commodity gained 4.5 percent during the week ending on August 16, according to data provided by FactSet and reported by MarketWatch.

The metal has benefited recently from global market participants looking for safe-haven assets and those participating in short covering, Jason Rotman, president of Lido Isle Advisors in Newport Beach, California, told the news source.

Bullish wagers
You might be interested in knowing that in addition to enjoying this recent strong price performance, there are many bets that gold will rise in value in the near future, Bloomberg reported.

Data provided by the U.S. Commodity Futures Trading Commission indicated that short wagers for gold plunged 17 percent by August 13, while long bets fell only 3 percent, according to the news source. As a result of these changes, net exposure to the precious metal surged by 18 percent to reach 56,604 futures and options by that date.

This happens after the precious metal fell into a bear market in April, having lost 20 percent from its recent high. Gold has plunged this year, as many different market participants have shunned it amid concerns that it is no longer a safe haven. However, this trend has seemingly reversed in the last several weeks.

"People became more interested in holding gold as the price dropped," Tom Stringfellow, the president of San Antonio-based Frost Investment Advisors LLC, told Bloomberg. "Sometimes it's too far too fast, and in this market, there's money always looking for relative value."

Potential QE tapering
However, Rotman told MarketWatch that the future gains of the precious metal could potentially be limited as "the market braces for a potential tapering announcement in September."

There are many different market participants who believe that the quantitative easing being conducted by the Federal Reserve will soon be reduced, according to the news source.

The Federal Open Market Committee is scheduled to issue the minutes for its latest policy meeting on Wednesday, August 21, Reuters reported. The statements that they contain could help to worsen concerns that these bond purchases will soon be lowered in volume.

Barclays recently wrote in a note that these minutes will likely indicate that in the event that the U.S. economy continues to improve, the voting members of the FOMC will be prepared to lower the amount of assets bought every month starting in September, according to the news source.

Any change in QE, or even a substantial shift in the expectations surrounding such stimulus, could potentially have a major impact on gold prices. Various assets experienced sharp declines in value in June, after Federal Reserve Chairman Ben Bernanke told members of the media that such bond purchases could be reduced in volume starting as early as this year.

Amid these concerns about reducing stimulus, 65 percent of economists who recently took part in a Bloomberg poll indicated their prediction that September will be the time when the Fed will start reducing its current bond purchases. They said that the central bank will likely lower these transactions by about $10 billion per month at that time.

If you want more free trading education, you can find it at TradingPub, home to some of the top investors and traders in the industry.