Gold at 6 Month High Ahead of ECB Meeting, U.S. payrolls

September 6, 2012 at 11:04

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Bullion tracked the euro higher on Thursday and rose to its highest since March ahead of a meeting of the European Central Bank later in the day that could bring the announcement of new policies to help contain the euro zone’s debt crisis.

But many investors are likely to turn their attention to U.S. non-farm payrolls data due on Friday, with a weaker-than-expected number likely to bolster expectation of more quantitative easing by the Federal Reserve, probably later this month.

“There’s a lot of event risk in the market at the moment. People seem to be positioning for a relatively positive outcome from the ECB, and that’s probably why we are testing $1,700 right now,” said Nick Trevethan, senior metals strategist at ANZ in Singapore.

“If they come up with a clear and relatively detailed policy framework, we could see gold up another $10 or $15, or maybe more. If they are less clear than the market hopes, then prices could fall back. We see support around the $1,676 level.”

Other precious metals rose as gold rallied, with silver and platinum rising to their strongest levels since April. U.S. Fed Chairman Ben Bernanke’s comment on the grave condition of the U.S. labour market last week had prompted investors to buy gold as a hedge against inflation.

Sources said that the ECB was ready to waive seniority status on government bonds it buys under a new programme, which it is set to agree upon at Thursday’s Governing Council meeting.

“I think (the ECB) is going to buy sovereign bonds. But the market is a bit overbought already. Everyone is betting the QE3 is coming. I think the downside is limited even though a correction is coming,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

“It’s all very quiet in the physical market,” said Leung, adding that gold was likely to find support at $1,670-$1,680.

Gold, typically a safe-haven asset, has often tracked the fortunes of the euro and stocks, with speculators selling the metal for cash to cover losses in other markets as the euro zone debt crisis caused turbulence in financial markets.

The metal has risen on talk that the ECB will launch a programme of purchasing Italian and Spanish bonds, with other steps aimed at lowering borrowing costs for debt-saddled countries.

Stocks edged higher on Thursday and the euro held on to the previous session’s gains on hopes that the ECB would unveil new tactics to curb surging borrowing costs in indebted euro zone states.

But thin trading suggested that some gold investors had expected the ECB to announce the new buying programme, while selling persisted in the physical market ahead of the payrolls data and as bullion prices held near highs.

The first two rounds of U.S. quantitative easing have lifted gold prices, which have doubled in the last four years. The Fed’s next policy meeting is scheduled for next week, but the U.S. jobs report on Friday could affect the decision.

“Physical selling is still there, and Thailand is the most active seller,” said a physical dealer in Singapore. “We are also seeing gold bars coming from Indonesia.”