Slow U.S. economy will have the Fed continuing to print money for a minimum of two years
It's been a down week for gold prices, reaching one-month lows, but on Thursday, things began to turn around for the precious metal.
Due to short-covering in anticipation of Friday's employment numbers and comments from European Central Bank (ECB) President Mario Draghi raising expectations for an interest rate cut, Comex February gold rose $8 an ounce to $1,701.80.
Gold exchange-traded funds (ETFs) also had a good day on Thursday as they hit record highs of 76.133 million ounces.
Peter Spina, president of Goldseek.com said to Investor's Business Daily of Thursday's levels, "If gold does remain around these levels for the near term (several months), this remains a very healthy gold market, which will set the tone for the next move up."
After the November U.S. jobs report, which had been expected to be skewed from Superstorm Sandy, came out better-than-expected on Friday, gold went above $1,700 again. Expectations for Federal Open Market Committee (FOMC) easing fell a bit.
Until the Dec. 10 and Dec. 11 FOMC meeting ends, investors are expected to hit the sidelines.
At this week's meeting, FOMC members will decide what to do with "Operation Twist" as it comes to an end. Many think they will extend it, plus implement a "QE4."
This would be good for the precious metals markets. But gold prices are affected by much more than the FOMC.
What's driving gold prices
In a recent Goldman Sachs research report, the firm estimated the slow U.S. economy will have the Fed continuing to print money for a minimum of two years.
This would place QE3 at $2 trillion, which equals QE1 and QE2 combined.
Since the Fed began implementing its QE programs in January 2009, it has assisted with gold's 97% increase in less than four years.
Along with a Fed intervention that will keep gold prices rising, the big banks are also bullish on gold prices.
On Thursday, Deutsche Bank metals research head Daniel Brebner painted a rosy picture for gold prices in the near term and into 2013, thanks to the European debt crisis and expansionary measures by the central bank.
Brebner told MarketWatch that prices could modestly rise if the fiscal cliff issue has an early resolution and that "further central bank balance sheet expansion" in 2013 could move gold to $2,000 a troy ounce.
Bank of America had recently estimated $2,400 gold prices by 2014's end. The website Zero Hedge expressed even greater optimism for gold prices: a forecast from QE3 that will have gold at $3,350 in early 2015.
While the markets will take a slow breather as the Christmas holiday nears and the FOMC meeting is complete, there's still the uncertainty of the fiscal cliff to keep gold prices moving higher.