Gold prices gained on Tuesday on hopes of further monetary easing from the Fed following after data released on Monday showed U.S. manufacturing activity dropped contracted. Silver prices have also edged higher in trading today.
Whenever central banks increase the money supply by slashing interest rates, gold prices edge higher on account of inflationary pressure in the economy. The yellow metal is the most preferred hedge against rising prices.
In addition, the PMI data from both China and Japan, released on Monday also showed that economic activities contracted in June even as euro zone continued to reel under recession with industrial production falling for yet another month.
It seems that with global economy losing all the momentum in the first two quarters of 2012, the quantitative easing from central banks around the world is imminent. However, Dominic Schnider, analyst at UBS Wealth Management at Singapore doesn’t’ think that QE will be coming anytime soon.
While speaking over this matter with Reuters, he said “You can take it as a sign that chances of QE (quantitative easing) are improving, (But) we are unlikely to see a big add-on after Operation Twist was extended, unless things fell off the cliff. And remember, when things did fall off the cliff in 2008, gold fell as well.”
Fed’s “Operation Twist” involved selling short-term securities to buy longer-term ones to keep long-term borrowing costs at lower levels.
U.S. spot gold Spot gold edged up by half a percent to $1,605.36 an ounce by 0626 GMT while U.S. gold futures contract for August delivery also traded at $1,609 an ounce level, at last check.
Meanwhile, in Asia, the physical side of the gold market remained subdued on Tuesday.
Silver futures also gained 1.68%, to trade at $27.96 an ounce.
In pre-market trading in New York, the iShares Silver Trust (ETF) (NYSE: SLV) is up 1.57%, the ProShares Ultra Silver (ETF) (NYSE: AGQ) is up 3.35%, and the ProShares UltraShort Silver (ETF) (NYSE: ZSL) is down 3.55%.
