Gold Steadies after Posting Its Two-Year High Quarterly Gain

With central banks around the world announcing stimulus measures, seen to be flooding the market with liquidity and pushing up inflation, September has been a good month for gold with the metal’s safe haven appeal for investors. On 1 October 2012, Reuters reported that gold steadied just below one-week highs, after posting its strongest quarterly gain since the second quarter of 2010.

Gold rose by just five percent in September, its largest monthly percentage advance since the 11-percent increase observed in January. September, however, also marked a quarterly gain of 10.6 percent, or the strongest result on a quarterly basis since the second quarter of 2010. In addition, exchange-traded products backed by physical gold saw an inflow of over four million ounces in September, the most since March 2011. On a quarterly basis, ETFs took net inflows of just over 3.5 million ounces, the biggest rise since the last quarter of 2011.

As noted by Reuters, September is a traditionally strong month for gold, since for the last 43 years, the metal has risen some two percent on average in September, against an average 0.3 percent loss observed in March, the month of gold’s worst performance. It is hardly surprising therefore that most of gold’s gains in the third quarter were posted in the five final weeks of the quarter, with the price rising by 5.1 percent.

The central banks’ action also largely contributed to making September a successful month for gold. The US Federal Reserve launched its open-ended programme for purchasing mortgage-backed securities, dubbed QE3, and was quickly followed by the Bank of Japan’s monetary easing intended to weaken the yen and stimulate Japan’s economy.
!m[](/uploads/story/496/thumbs/pic1_inline.png)Reuters reports that traders and analysts do not expect any near-term major price swings as investors and consumers adjust to the higher price and as markets await the release of a key report regarding US employment, with the unemployment rate prompting the Fed to announce its bond-buying programme in the first place. “For the moment, it feels as if the investor market is still not convinced that gold is going to go much higher,” notes Afshin Nabavi, head of trading at MKS Finance, as quoted by Reuters.

In the long-term, however, Bloomberg recently quoted Richard O’Brien, CEO of Newmont Mining Corporation (NYSE:NEM), the second-biggest producer by sales, who noted that gold may rise to $2,500 (£1.548) an ounce in three years, with investors buying the metal as an inflation hedge. Yet, Mr O’Brian also points out that a global economic recession will be negative for all commodities, including gold.

Bloomberg reports that central banks and the International Monetary Fund were the largest bullion owners with 29,500 metric tonnes at the end of 2011, according to data by the World Gold Council. Mr O’Brien predicts that central banks will purchase at least 450 tonnes of gold in 2013, so as to diversify reserves and protect against inflation. “We are just in the middle of what will continue to be a very bull market for gold coming into the future,” Mr O’Brien commented at a MINExpo conference in Las Vegas on September 24, as quoted by Bloomberg. The metal is trading “more like a currency than like a commodity.”