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Future uncertainty should support the gold price

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Van Eck’s gold specialist Joe Foster comments that gold was range-bound in September, moving in the USD1,300 to USD1,350 per ounce range. Economic news from the US was generally weak and central bank announcements were supportive of gold. 

With the Federal Reserve keeping rates on hold and the Bank of Japan acknowledging that negative rates and quantitative easing is not working as well as planned, Foster comments that its experimentation with unconventional monetary policies will lead to unintended consequences that raise systemic risk.
 
The firm writes that gold bullion ended the month at USD1,315.75 per ounce for
a 0.5 per cent gain while gold stocks experienced more positive returns.  The NYSE Arca Gold Miners Index (GDMNTR) posted a 3.8 per cent gain while the MVIS Junior Gold Miners Index (MVGDXJTR) advanced 5.8 per cent.
 
Looking forward, Foster writes that markets are again pricing in a higher likelihood of a Fed rate increase in December based on comments made by Fed members following its September meeting.
 
“This, in turn, is lending strength to the US dollar. As a result, gold has fallen below USD1,300 per ounce and broken below the longer term trend line that had been established this year. This leads us to be less aggressive in our gold price expectations for 2016. It looks like the current consolidation could persist through October, dependent on any economic news that develops. However, this price action changes virtually nothing in our positive long-term outlook for gold. Price weakness is likely to spur seasonal demand out of India and Asia. We continue to believe that a Fed rate increase would ultimately be seen as another misstep that puts global growth at risk. In addition, the US presidential election, implementation of Brexit, and further loss of confidence in central bank policies should support gold through 2017 and beyond.”

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