•  Gold rose 2% yesterday and reached as high as $1,128 overnight and has steadied near these levels since.

• Data showing a rebound in manufacturing was greeted positively by both the equity and commodity markets (the S&P 500 rose 1.6%) and New Year optimism saw all markets rise. The weaker dollar and oil prices over $80 a barrel contributed to gold’s strength. Start of year asset allocation by funds likely also contributed to strength in the precious metal markets.

• The continuation of quantitative easing and continuing record low interest rates in the US is likely to see the dollar remain under pressure (with some periods of strength and counter trend rallies) and this will likely lead to another positive year for gold. Concerns about the deteriorating public finances and government borrowing in many industrial nations could see government bond markets come under pressure leading to further diversification into gold.

• “There’s money moving back into the marketplace from the funds for beginning-of-the-year investment,” said Ira Epstein, director of the Ira Epstein division of The Linn Group. There was tendency for this to happen at the start of the last few years, as large speculators returned to the marketplace after many had sold to exit positions and square books ahead of year-end, he said.

Tags: gold as an investment, Gold News, Gold price

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