Gold Rangebound

July 11, 2012 at 10:14

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Gold edged higher in Asia Wednesday with expectations of range-trading in the near-term as investors wait for the minutes of the Federal Open Market Committee’s June 19-20 meeting, scheduled to be released later in the global trading day.

A Sydney-based trader attributed the yellow metal’s rise to short-covering.

“It looks like the commercial and private banking sector have got a bit of a taste for it [short-covering] this morning, and that’s why it’s edging higher,” the trader said.

However, in the near-term, market participants expect gold to remain range-bound ahead of the FOMC minutes.

“Gold should be trading around these levels in the short-term,” OCBC Bank analyst Barnabas Gan said, adding that while a spate of monetary easing recently by the Bank of England, European Central Bank and the People’s Bank of China was expected to push up gold prices significantly, the increases fell below expectations.

“It basically reinforces our view that gold will remain a dollar play and strength in the dollar will continue to depress gold prices,” Mr. Gan said.

He expects gold to keep trading between $1,570-$1,600/oz, but if the precious metal managed to break above $1,600/oz, “it will be a strong signal for gold to move higher.”

Any hints about possible further easing from the U.S. Federal Reserve could push gold higher as more money is pumped into the system.

In the medium-term, if economic indicators from the U.S. continue to disappoint, investor attention will turn to the Fed’s two-day policy meeting starting July 31.

Meanwhile, Scotiabank said in a note that silver could move lower toward a test of the $26/oz support level and trendline resistance at $28.16/oz.