Gold Prices Higher On Positive US Economic Data

By Dave Brown - Exclusive to Gold Investing News

With gold prices nearing a 2 month high in the range of $1,755 per troy ounce, Thursday's news of reduced United States claims for unemployment benefits has generated optimistic sentiment. The United States equity markets responded positively  to the news with the dollar rising against the euro.

Last week monetary policy guidance in the United States supported spot market gold prices, which have climbed 12 percent so far this year. Underlying confidence in the ability for the price of gold to strengthen during a low interest rate environment has allowed it to rise this year even during periods when other assets are sensitive.

Economic outlook in the United States and Europe

In the United States most economists are expecting a combination of reduced inventory expansion and cautious consumer spending to result in modest quarterly growth, with predictions in the range of 2 percent annualized for the current quarter.

The European sovereign debt crisis challenges the original design of the Eurozone, which was intended for a monetary, but not a fiscal union. Eurozone member countries are not able to properly employ accommodative monetary policies to balance fiscal austerity measures.

One solution might have been to create a strong central bank backed by a common budget for the currency union. This would still have been problematic, since addressing regional issues with centrally directed monetary and fiscal policies seems impractical.

Impact on gold prices

Last year's concerns over the United States' debt ceiling and the Eurozone debt crisis drove gold sharply higher for much of the year even as they weighed on the euro. However, towards the end of 2011 gold behaved more like a commodity, tracking equities lower as risk appetite retreated and traders looked to liquidate positions to make margin calls.