Gold for April delivery closed up $6, off its session highs, to settle at $1,740.40 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,750.60 and as low as $1,727 an ounce while the spot price was adding $6, according to Kitco's gold index.
The European Central Bank has already seen its balance sheet expand 27% since September, and these big three-year loans at low interest rates will continue to ramp up the money supply in the system. The euro was moving higher, however, as these steps helped calm investors' worries over short term funding needs. Longer term, any inflation expectations should be good for gold as the hard asset does well as paper currencies lose value. The question is whether or not the money is making it out into the actual money supply. The M2 supply in the U.S. for example -- money in circulation plus checking, savings and travelers checks -- has grown 28% since the beginning of 2008 but banks are still keeping $1.5 trillion in excess reserves stashed at the Fed, which explains the lack of inflation in the U.S. "Ultimately it can matter," says Leo Larkin, metals and mining analyst at S&P Capital IQ, "if the economy gets better and the money starts to be lent." Larkin has not changed his price target for gold in 2012 despite the Federal Reserve's recent action of keeping rates low until the end of 2014. Larkin thinks a spike to $1,900 an ounce is a possibility but that gold could head sideways for most of the year to work off any overbought conditions. "Gold is up 11% and we are barely through the first month of the year ...
>To contact the writer of this article, click here: Alix Steel.
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