Gold prices finished August trading above $1,800 an ounce, a magnificent 12.3% for the month, recording its best one-month performance since 2009. There are a few fundamental reasons for the gold prices to keep up the uptrend. The most important one is QE3 or another round of asset purchase program by Fed or simply said, printing money out of thin air.
The possibilities of a QE3 are high considering it was discussed in the FOMC's August 9 meeting where some policy makers were in favor of spurring the economy while some were worried about the risk of inflation for such a lose monetary policy.
On Tuesday, Chicago Fed chief Charles Evans called for the stimulus program until unemployment falls below 7% or inflation rises above 3%.
Considering the recent gloomy job report that showed 91,000 jobs were added versus the 100,000 expected, there is a good chance that Fed will reach out for one of his last playing cards, QE3, at the two-day meeting in September.
We remain bullish on forecast of gold prices and set a target price of $1,950 an ounce.
Gold stocks are enjoying a healthy run up. Goldman Sachs is bullish on the uptrend move and thinks emerging markets and the recent drop in mining stocks has created a particularly attractive entry point for select names.
