Gold will reach $2,000 per ounce in the coming months

The gold price advanced $16.50 to $1,783 per ounce Tuesday, spiking higher on the news that gross domestic product in the 17-nation Euro zone rose a mere 0.2%. The price of gold, which sank as lows as $1,728 per ounce early yesterday, climbed following the weak economic data out of Europe. Additional bond purchases from the European Central Bank are highly likely following Europe’s weakest GDP figure since the global economy was mired in a recession in 2009. The euro fell to 1.438 against the U.S. dollar on speculation that the ECB will cut interest rates at its next policy meeting.

As for the Fed’s response to the downturn in the economy, Lockhart stated that “If additional actions are required, I can assure you the Federal Reserve is not out of bullets. Expansion of the balance sheet or changes in the composition of the Fed’s asset portfolio are available, in my view. These could be quite effective, particularly if done in sufficient size, in the event that the economy retreats back into contractionary territory.”

Although Lockhart did not specify the potential size of any expansion to the Fed’s balance sheet, such a measure would likely result in a third round of quantitative easing (QE3) and be quite beneficial to the price of gold.

The gold price also received a boost from TD Securities, which reiterated its longer-term positive outlook on the yellow metal. In a note to clients, the firm predicted that the price of gold will reach $2,000 per ounce in the coming months.