INCREASED liquidity in the world's financial markets is the primary factor behind the rise in the Gold Price, according to a sector analyst at a leading South African bank.
Global liquidity – defined loosely as the value of assets held on the US Federal Reserve's balance sheet plus the value of worldwide government debt – is "the dominant causal driver" for the Gold Price argues Walter de Wet, London-based commodities strategist at Standard Bank.
"The other causal driver is real interest rates, but this has a much smaller impact on the Gold Price relative to the impact of global liquidity," he wrote in a note to clients on Wednesday.
De Wet adds that despite the Fed's second round of quantitative easing coming to an end, there are indications that the money supply has carried on expanding.
"QE2 ended in June but the monetary base in the US continues to grow — at least according to the latest St Louis Fed zero maturity money supply data."
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