Gold Price Hits $1,512, Higher for Third Straight Week

GOLD PRICE NEWS – The gold price closed higher for the third consecutive week, rising to a series of new record highs. Early Friday, the price of gold touched $1,512 per ounce as flows into hard assets continued on the back of worries about the stability of the U.S. dollar.

News that S&P Ratings Service downgraded its long-term outlook on the United States to “negative” from “stable” gave a boost to gold prices earlier in the week. Investment demand for gold surged as a result of the ratings change, prompting investors to increase their allocations to the precious metals complex. S&P noted, “We believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years.”

Gains in silver dwarfed the appreciation in the gold price again this past week. The price of silver rallied over 11%, compared to the 1.5% rise in the gold price. Silver has now closed higher for a remarkable eleven of the past twelve weeks, hitting yet another 31-year high Friday morning at $47.71 per ounce.

Soaring precious metals prices have been driven by what has been the dominant investment theme of the past month – persistent weakness in the U.S. dollar. With signs of inflation creeping up everywhere, most notably in the broad-based commodity rally, an increasing number of central banks have moved to tighten monetary policy. However, despite a few comments from regional Fed Presidents, the U.S. Federal Reserve has shown no inclination to alter its crisis-level monetary policy. Zero nominal interest rates combined with a massive expansion of the Fed’s balance sheet to over $2.6 trillion have provided a tailwind for the gold price.

With Fed Chairman Bernanke largely silent over the course of the past month, investors are betting that he is not ready to normalize monetary policy. Thus, dollars are sold, or shorted, and the proceeds invested in higher-yielding, or riskier, assets such as commodities, stocks, and foreign currencies. Precious metals such as gold and silver have benefitted from their store of value qualities. They cannot be hypothecated via a printing press like hundred dollar bills.

Institutional investors such as John Paulson, David Einhorn, and George Soros recognized this early and moved a portion of their assets under management into gold and into other investments tied to the gold price, such as gold mining stocks.

Next week’s Federal Open Market Committee meeting (April 26-27) is shaping up as the most important Fed meeting in at least six months. With inflation moving higher in not only emerging markets, but now Europe, the pressure on Chairman Bernanke is increasing. The European Central Bank has already hiked rates and Chinese policy makers continue to tighten monetary policy. Investors will scrutinize every word of the accompanying FOMC policy statement in search of clues as to whether Bernanke is ready to begin the process of normalizing monetary policy.

Following the meeting, Bernanke will give the first ever Federal Reserve press conference, an event that has been highly anticipated. With many questions still unanswered and the inflation versus deflation argument still being haggled over, investors should have a better idea where the Fed Chairman lands. Gold prices have had a potent tailwind at their back as a result of Helicopter Ben’s aggressive deflation-fighting campaign. We will find out next week if this will continue to be the case.

(Source: http://www.goldalert.com/gold-price-hits-1512-higher-for-third-straight-week/)