Gold busts through $1,665/oz: Is this the beginning of a new rally?

Recent upswing comes on back of hope for US quantitative easing

Spot gold prices rose above $1,665 a troyounce at about 10am UAE time today (Thursday), the first time the yellow metal has managed to pierce the $1,660-barrier since early May.

The recent upswing in gold prices comes as minutes from the latest US Federal Reserve meeting fuelled hopes for the swift launch of another round of quantitative easing.

The Fed is likely to deliver another round of monetary stimulus “fairly soon” unless the economy improves considerably, minutes from the central bank’s latest meeting suggested.

Put simply, more quantitative easing means more money being printed, diluting the value of the dollar and pushing up the prices of commodities valued in dollar, like oil and gold.

Additionally, the need for another round of QE means that the economy isn’t stable still, forcing investors to flee to the relative safety of precious metals.

“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” the minutes read.

Although physical demand from India andChina – two of the world’s largest gold consuming nations – has remained soft through the summer, the price of gold in Indian rupee is at all-time highs,which has caused price sensitivity in the short run.

In India, which reclaimed its traditional position as the world’s biggest gold buyer in the second quarter according to statistics released by the World Gold Council, increased buying was reported from retailers and investors yesterday and early this morning.

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