Gold has been in a torpor since March, when Federal Reserve chairman Ben Bernanke seemed to suggest to a congressional committee that further quantitative easing was not necessary. But as weak growth and eurozone turmoil prompt a rethink on QE, the gold price has flickered into life and could be set for a rally.
The price action is technically significant, too – gold bounced off a key support level, and bulls are now eyeing an ascent back towards the $1,900 per ounce high reached last autumn.
A co-ordinated push by central banks for more credit easing will boost most asset classes, but gold will benefit also because credit easing debases paper money. It could also benefit from other outcomes, such as a breakup of the euro. That would benefit safe havens like US, German and UK government bonds, but also gold.
As the chart shows, gold has found key price support around the $1,525 level three times since last September. That suggests a market bottom is in place, and although the summer months are traditionally weak for the metal, longer term its prospects remain positive.
