Gold's bullish case remains despite G-20

Members of the G-7 made a loophole-riddled commitment not to engage in currency wars and no doubt the G-20 will reinforce that along with talk that the world economy is improving, but there was no intention of shelving one of the most potent devaluation weapons of all: Quantitative easing (QE).

There is always a strenuous effort to make these big global summits look positive with displays of unity and common purpose. The G-7 statement was no doubt designed to smooth the way for the G-20 meeting starting Thursday as some of its members namely Russia and South Korea were voicing concerns about currency wars. It helped JPY reverse some of its declines and an upbeat summit could also see gold prices fall further.

However, the financial system has become hopelessly addicted to QE, it's become the ultimate opiate for sustaining values of equity and commodity markets, it's also a key support for gold's 12-year rally. There's good reason to believe that the grand experiment with QE still has further to run, even though there are signs that it is steadily becoming less effective.

Many politicians and policy makers still think that it's just a case of creating enough new money and consumers eventually will start spending again like they did in the pre-2007 days. In the spirit of Federal Reserve Chairman Ben Bernanke's infamous speech in 2002 about dropping money from helicopters, there is a strong possibility that central banks will merely do QE on an even grander scale should advanced economies continue to remain sluggish. And that remains the long-term bullish case for gold.

XAU/USD chart – short-term bearish, but longer-term?

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