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Gold faces a crucial test in the coming week.
Monday is a public holiday in the US, but a raft of economic data including consumer spending and GDP are scheduled for the week culminating with the employment report for May being released Friday morning.
It would be the final employment numbers the US Federal Reserve would be able to take into account before June’s meeting to decide on monetary policy direction.
Weak numbers would strengthen the hands of Fed doves who are calling for an extension of quantitative easing programs.
Operation Twist was announced in September and pumped $400 billion into markets and expires in June. The program followed QE1 which began in December 2008 and QE2 when the Fed bought $2.3 trillion of bonds.
Efforts to prevent Greece exiting the Eurozone and the banking crisis in Spain would also keep gold bugs busy with many predicting similar unconventional monetary policy measures are unavoidable in Europe.
If the world’s central banks join hands to flood the market with cheap money it will be a massive boon for gold. Gold should recapture its allure as a storer of wealth and an inflation hedge. And it would hurt the dollar, boosting the metal’s price.
Before QE1 an ounce of gold was worth $837. Spot gold ended the week at $1,566 on the Comex exchange in New York and is trading slightly down for 2012 after an uninterrupted bull run of 11 years.
On the 16th of this month gold briefly fell to $1,528 as investors sold the precious metal to cover losses elsewhere. That signaled a bear market with the precious metal 20% below the record of $1,913 hit on August 23 last year, but over the next two days the precious metal enjoyed a stunning rally.
The sharp turnaround in sentiment had some asking whether the rally is a dead cat bounce or perhaps the best chance to buy before prices rocket.
Read more about QE in the EU, Grexit and Operation Twist and the effect on the gold price here >> and here >>
