Gold continues its short-term rally as assurances from Federal Reserve Chairman Ben Bernanke that QE3 remains alive kept the precious metal on track for its first weekly advance in a month.
After Bernanke's pronouncements, gold prices jumped by 2.6% to $1,299 per ounce, marking a fourth winning day in a row - gold's longest winning streak since mid-March.
In turn, the U.S. dollar dropped sharply because Bernanke indicated the Fed isn't in any hurry to raise interest rates.
You see, gold prices and the dollar are connected: a weaker dollar helps dollar-denominated commodities because it makes them less expensive to buy for holders of other types of currencies. Demand also increases for gold as a hedge against a drop in the dollar's value.
Analysts also believe that the Fed's continued policy of quantitative easing has buttressed the rallying gold prices.
Even though gold prices declined today (Friday), many economists still have a bullish outlook.
Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund, reported for WSJ's MarketWatch, "[Friday's pullback] is just a little settling down from yesterday's big jump and before the weekend as traders get ready to tackle next week."
Mr. Mimani isn't alone in his bullish gold price outlook. Felix Zulauf, president of Zulauf Asset Management, reported for Itaú BBA:"Gold has turned here for a good recovery bounce, as the technical are extremely oversold, leading to a run into the mid/upper $1,300 in coming weeks."
And market-maker Scotia Mocatta writes, "A weekly close [in the gold price] above $1267 will bring in fresh buying on the belief [of a] bullish signal."There are additional factors at play in driving up gold prices in the short term besides Wednesday's Fed blast.
In Turkey, a workers' strike at the Turkish State Mint, one of the world's largest producers of gold bullion coins between 2000 and 2010, has hit supply and pushed local gold prices higher, according to Hurriyet Daily.
Roubini Global Economics analyst Gary Clark told CNBC yesterday , "Idiosyncratic factors to do with supply are driving up lease rates, and driving up the gold price at the moment."
Furthermore, Asia is a big factor. Gold demand there has risen dramatically, driving up short-term gold prices.
In fact, next week brings China's second-quarter GDP data. Marc Ground at Standard Bank notes that "Asian physical buying (particularly from China) has provided a crucial crutch for gold amid Fed tapering concerns."
Gold has justifiably earned a stereotype for volatility. But forces are in play that point to a healthy upside for gold.
Between the Fed's announcements, the global market, and other idiosyncratic factors, the short-term gold outlook is appreciably bullish.
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