Comex gold futures beat most of the other major markets and rose 10.4% in Q3 this year, the second largest quarterly increase since the 11.91% jump in Q2 2010. During Q3, the S&P 500 index, the euro Stoxx 50 index, the CRB Commodities index rose 6.35%, 9.01% and 8.84% respectively while the dollar index fell 2.07%. Over 50% of the move in gold price this quarter was probably due to anticipation of the US QE3 although the announcement of the European Central Bank to buy unlimited bonds with attached conditionality and the ruling of the German court on the validity of the European Stability Mechanism structure also boosted gold prices. Gold futures further rose 0.25% early this week.
The manufacturing outlook in the US has done a bit better than its European and Chinese counterparts. In September, the US Institute for Supply Management index surged to 51.5 compared to 49.6 in August, helped by the improvement in the housing and auto markets. In the UK manufacturing contracted for the sixth month with the September Purchasing Managers Index at 48.4. The Chinese September headline PMI at 49.8 contracted a second month although the data improved 0.6 point from that in August. Ben Bernanke commented on Tuesday that he could keep monetary conditions in the US accommodative even after the economy strengthens and he viewed QE3 could boost stock prices which would help consumption and the labor market.
As gold’s price continues its positive run for the twelfth year, economists, analysts and fund managers are increasingly discussing and debating gold's functions and outlook. While both the fund managers at Pimco and the UBS Senior International economist agree that gold holds an important position in a diversified portfolio, Pimco views gold as a currency which does not pay any interest while the UBS economist calls the view that gold is a reserves currency, nonsense – gold supply cannot grow as fast as the rate of the world nominal GDP growth which is about 5% p.a. Nevertheless, during times of sovereign uncertainty and stimulative policies, gold demand will thrive as investors lose faith in fiat currencies and want an alternative store of value to hedge their investments.
