Gold gained for a seventh straight day to settle at its highest price in five months Tuesday, after the Swiss National Bank last week triggered turmoil in currency markets and investors looked ahead to this week’s meeting of the European Central Bank.
Gold for February delivery GCG5, +0.40% settled up $17.30, or 1.4%, at $1,294.20 an ounce, on the New York Mercantile Exchange. That’s the highest settlement for gold since Aug. 19. The seven-day rally has resulted in a 7.1% rise in gold prices.
In January, gold is up 9.3%. That follows depressed prices toward the end of 2014 due to year-end tax-loss selling, so part of the recovery is due to bargain hunting, according to Brien Lundin, editor of Gold Newsletter. “Like a spring, it’s only natural for the price to rebound once the selling pressure abates,” Lundin said in emailed comments.
With the Swiss franc soaring on Thursday after the Swiss central bank’s decision to abruptly scrap an exchange rate floor with the euro, Lundin sees “the hallmark of a true gold bull market” based on monetary inflation.
At first glance, the SNB decision should have been bearish for gold since it signaled ECB readiness to launch easing measures, boosting the dollar against the euro and driving down the price of gold, he said.
“However, a longer-term, more fundamental analysis would see the Swiss move as a sign of desperation, and a sign that virtually all Western currencies, including the dollar, are going to be expanded over the coming years,” Lundin said. “This will be necessary both to float feeble economies and to depreciate the values of massive sovereign debts.”
With that said, attention this week is focused primarily on the ECB , which meets Thursday. The ECB is widely expected to announce that it will pursue a program of full-fledged quantitative easing in an effort to hold off a deflationary spiral.