Price of gold surges on Fed stimulus hopes; is it headed for $2,000?

In anticipation of new stimulus measures, gold prices jumped nearly 2% an ounce. This was propelled in part by an unexpected rise in jobless claims, highlighting the job market's weakness. The minutes from the Federal Reserve's most recent meeting featured a discussion of another possible round of quantitative easing.

By Tiffany Hsu
August 23, 2012
LA Times

The spot price of gold lurched up Thursday as anticipation of new stimulus measures worldwide grew.

The precious metal was up 1.9% to $1,669.10 an ounce, propelled in part by an unexpected rise in jobless claims that highlighted the job market's weakness. And an HSBC report showing sagging manufacturing performance in China didn't help.

Business activity in the Eurozone, including in normally stalwart Germany, is shriveling so fast that many analysts are predicting a recession for the entire region, based on new data from research firm Markit.

The minutes from the Federal Reserve's most recent rate-setting meeting, which were released Wednesday and featured a discussion of economic growth strategies, stoked talk that the bank would engage in a third round of bond-buying tactics known as quantitative easing, or QE.

Though the price dipped slightly Wednesday, gold has otherwise been on a six-day streak of increases. But the price is down from a year ago, when it soared to $1,858.30 an ounce not long after credit rating agency Standard & Poor's downgraded U.S. debt.

"There's the potential for China, Europe and the U.S. to all do QE at the same time this fall," said Marin Aleksov, chief executive of precious metals broker Rosland Capital in Santa Monica. "It's the perfect storm."

Some are pessimistic that Fed Chairman Ben S. Bernanke and crew will act so definitively. Earlier Thursday, James Bullard, president of the St. Louis Federal Reserve bank, told CNBC that the Fed meeting minutes were "stale" and that he didn’t think major economic boosters were necessary.

A gold rush may be further thwarted by signs of economic improvement. Recent housing data suggest a real estate rebound, with rising prices and home sales. Consumer spending and confidence are shaky, but are on the mend, according to some reports.

But analysts such as Aleksov disagree.

"The numbers are not good enough for the economy," he said. "We're not creating enough jobs, enough wealth. The last GDP numbers were very bad. There's a fiscal cliff coming up at the end of the year. We need to do a lot more in order to progress."

Many now believe the haven metal might be poised to break through $2,000 an ounce -- which would be an all-time high -- based on what the Federal Reserve does when it meets Sept. 12-13.

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