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Why Gold Could Rise

Written By Brian Hicks

Posted July 5, 2012

Amid renewed signs of a continued U.S. economic slowdown, investors ramped up expectations that central banks worldwide will present their versions of monetary stimulus packages. Since June, when data showed that U.S. manufacturing fell for the first time in three years, gold has risen nearly 5 percent. On Tuesday, gold prices rose another 1.5 percent to hit a two-week high.

Sudden spikes in crude oil as Iran’s nuclear ambitious continue to cause global tensions also helped gold prices, as did incoming news of unexpected droughts in the U.S. Midwest.

Overall, a combination of factors is conspiring to push gold ever higher. These include the aforementioned Eurozone financial crisis, the familiar story of a stumbling U.S. economy, and more worrying news of industry powerhouse China showing signs of slackening.

Reuters reports:

“We believe if evidence continues to mount that the U.S. economy is slowing and may require further monetary stimulus, then gold prices could get a boost rally,” said James Steel, chief commodity analyst at HSBC.

Job data to be released this Friday will be monitored closely for possible clues to the state of the national economy, as well as any interesting trends.

Investors also expect the European Central Bank to reduce interest rates, possibly hitting unprecedented lows, on Thursday. The ECB could provide support to the recent EU summit by lowering its benchmark rate to 0.75 percent. Although the ECB has never pushed this rate below 1, there are no restrictions on its doing so.

Meanwhile in India–usually the world’s leading market for bullion–trading in gold was anemic, as the rupee continues to hit record depths.