• The gold price rose by a spectacular 7 per cent over September. Some of the strength has subsequently been unwound, with the gold price easing to around US$1,710 per ounce in early November.
• Stimulus announcements by the ECB, US Fed and Bank of Japan during September, which have increased the outlook for inflation, caused a sharp pick up in the gold price because of the metal’s perceived ability to hedge against inflation.
• While the price of gold remains elevated following these announcements, the price did unwind over October, suggesting that initial expectations for higher inflation may have been a little exuberant.
• The near-term gold price is likely to be influenced by further details of policy stimulus in major economies, whereby more stimulus will equate to higher prices. However, just how permanent these announcement effects will be remains to be seen. Our sense is that markets are likely to overreact to changes in policy, and prices will take some time to revert back to more ‘normal’ levels.
• We have lifted our forecasts a little this month in response to having confirmation that policy stimulus will occur. We expect the gold price to average around US$1,750 per ounce over the December quarter 2012. Thereafter, upside risks to the gold price are expected to dissipate as the global economy strengthens and risk aversion dissipates.

For further analysis download the full report.

• Gold Market Update – October 2012 (PDF 247 KB)