As long as ‘print and inflate’ is policy, this bull market in gold will continue

The gold price dipped $6.68, or 0.4%, to $1,655.84 per ounce Thursday morning following the latest batch of reports on the state of the U.S. economy. The price of gold climbed to as high as $1,671.40 in overnight trading, but relinquished its gains after weekly jobless claims came in at 352,000 – the lowest level since April 2008. While the employment data improved, the gold price received support from a disappointing December housing starts report, which showed a decline of 4.1% – below the consensus estimate among economists. Lastly, the Consumer Price Index (CPI) came in at unchanged, below the 0.1% rise economists were expecting.

Yesterday the gold price held firm after a mixed report on U.S. inflation. The Producer Price Index for December rose 4.8%, below the 5.1% consensus estimate among economists. However, the Core PPI – which excludes food and energy costs – increased 3.0%, above the 2.8% figure expected.

While inflation has picked up in recent months, the Federal Reserve has noted on several occasions that inflationary expectations remain muted. If inflation remains in check and the labor market continues to struggle, the Fed may be prepared to further expand its balance sheet – according to Michael Feroli, chief U.S. economist at JPMorgan.

In a note to clients, Feroli wrote that “It doesn’t require a whole lot of disappointment on either the growth or inflation side to get quantitative easing going again,” said. “If you get enough deflationary fears, and inflation expectations move down, I don’t think (the Fed) would see a lot of costs” to implementing a third asset purchase program.

Miller Tabak’s Peter Boockvar provided similar thoughts on the Fed and monetary policy. “The balance sheets of the Federal Reserve and ECB have never been greater and both will continue to increase in size,” he contended. “The Bank of Japan, the Bank of England and the Swiss National Bank continue to print large amounts of money.”

As for the price of gold, Boockvar asserted that “As long as ‘print and inflate’ is policy, this bull market in gold will continue.”