Gold prices GLD, IAU could begin to rise toward the end of August and through the remainder of the year. Prices could rise toward levels seen earlier this year, but are unlikely to rise above those levels over the remainder of this year. Gold prices typically strengthen on a seasonal basis starting in September. Europe's economic woes remain at the center of the present weakening in global economic growth. Central banks of all major economies have pledged to do whatever they can in their capacity to stop economic conditions from deteriorating further.
Investors purchase gold as a hedge against the loss in value of currencies that sometimes occurs due to an increase in monetary accommodation. Collective monetary accommodation by central banks would likely have a neutralizing effect on the value of these major currencies and as a result little impact on the price of gold. While gold promoters continue to circulate comments that the monetary accommodations still to come surely will be inflationary, and thus push gold prices higher, investors are showing increased weariness of hearing these clarion calls of alarm without seeing any signs of inflation or rising gold prices. And, they are growing increasingly wary of both the gold promoters' siren songs, and of expecting gold to protect them from economic woes when it has not done well for the past 11 months.
The gold market is most influenced by policy decisions made by the U.S. Fed. The Fed's next policy meeting will be held on the 12-13 September. There is considerable speculation among market participants regarding an announcement of further monetary easing in the form of bond purchases or QE3 at this meeting. The Fed has not ruled out such a move but is waiting for clearer signs of weakness in the U.S. economy before it takes such steps. Economic data from the United States has been mixed, meanwhile.
Given that U.S. inflation is tame at present, with a greater risk of deflation than high inflation, the greatest influence on a decision to provide further monetary accommodation would be from the job market. If the economy is seen adding jobs at a healthy rate during August (150,000 or more), the Fed is unlikely to announce further monetary easing at its September meeting, which could weigh on gold prices. If the central bank does announce another round of bond buying or if there is a stronger conviction among the committee for such action going forward, gold prices could rise, or at least not decline from present elevated levels.
Net purchases by central banks also should help to provide support to gold prices. During the first six months of the year, central banks have purchased on a net basis 5.16 million ounces of gold. Additionally, it is known that the central bank of South Korea purchased 514,412 ounces of gold in July. This has not been included in the net figure stated above, which is based on data collected in the International Financial Statistics (IFS) from central banks. Fabrication demand also strengthens on a seasonal basis post-August, which should provide further support to gold prices.
Gold prices could become more volatile during the last few months of the year as the U.S. election approaches and a decision has to be made with regard to the country's fiscal policies by the end of the year. These are anticipated to agitate investors, and maybe stimulate some gold buying, but seem unlikely to cause a sufficiently strong wave of gold buying to push prices sharply higher. While a spike to levels seen earlier this year cannot be ruled out, a larger upward spike seems less likely.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.