Likelihood 'Remains High' for Central Bank Stimulus


"Precious metals prices held on to most of their gains from Friday's rally, which coincided with a stock market rally following better-than expected U.S. non-farm jobs data, as well as news that Spain may seek a bailout."

Both the spot gold and spot silver price posted gains in Monday morning's London trading, with the gold price hitting $1,610 an ounce—a few dollars up on where it ended last week—as stocks and the euro also rallied, with analysts speculating on whether central banks will conduct further stimulus measures.

"There is still room for [Federal Reserve] easing if it is required," says David Jollie, analyst at Mitsui Precious Metals in London.

"There is still a perception that it may be required. . .the question of when that is, with the U.S. elections approaching, makes it difficult to be super bullish on gold."

"We think the likelihood of further central bank moves remains high, particularly in Europe" agree analysts at Barclays.

The silver price meantime climbed as high as $27.93 an ounce this morning—a few cents above Friday's close—while other commodities were broadly flat.

Precious metals prices held on to most of their gains from Friday's rally, which coincided with a stock market rally following better-than expected U.S. nonfarm jobs data, as well as news that Spain may seek a bailout.

Spain's Prime Minister Mariano Rajoy told reporters Friday he would do whatever is "in the best interest of the Spanish people"—remarks widely reported as a hint that Spain could at some point seek a bailout on top of the €100 billion of aid agreed in June.

A day earlier on Thursday, European Central Bank President Mario Draghi said that the use of bailout funds was a "necessary condition" ahead of any "non-standard" measures by the ECB.

"What I want to know is what these measures are," Rajoy told a press conference Friday, "what they mean and whether they are appropriate and, in light of the circumstances, we will make a decision, but I have still not taken any decision [on whether to ask for a bailout]."

Draghi spoke last week of "severe malfunctioning" in the market for government bonds, leading to speculation that the ECN might be considering intervening in an effort to keep borrowing costs down.

"The tensions that have accompanied the Eurozone in the past years are already showing signs of a psychological dissolution of Europe," Italian Prime Minister Mario Monti said in an interview with German newspaper Der Spiegel published over the weekend.

"Italy has, to all intents and purposes, been hung out to dry" by Draghi's insistence that governments seek bailout assistance before the ECB will act, according to Nicholas Spiro at consultancy Spiro Sovereign Strategy, which specializes in sovereign credit risk.

"As far as Rome is concerned any external assistance would be the kiss of death. This puts Mr. Monti in an untenable situation."

"We're a lot less optimistic that policy makers will be able to get their act together quickly," adds John Shin, foreign exchange strategist at Bank of America in New York, suggesting that any rallies for the euro would be an "opportunity to sell."

"The ultimate goal of monetary and fiscal policy in [Europe] is to re-engage the private sector," writes Bill Gross, head of world's largest bond fund Pimco, in the Financial Times.

"They want your money. . .but private investors are balking—and for what it seems are good reasons—because policy makers' efforts have been, until now, a day late and a euro short, or more accurately, years late and a trillion euros short."

Over in New York meantime, the difference between bullish and bearish contracts held by Comex gold futures and options traders—the so-called speculative net long—rose by 25% in the week to last Tuesday, figures published by the Commodity Futures Trading Commission show.

The CFTC meantime is set to drop a four-year investigation into allegations of silver price manipulation, the FT reports.

Ben Traynor

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events—and must be verified elsewhere—should you choose to act on it.

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe