Gold Braced for Renewed Haven Boost

July 26, 2012 at 20:40

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Gold prices rose to a three-week high as investors began to position themselves for another round of “quantitative easing” from the US Federal Reserve.

Analysts said that investors had begun to return to the gold market amid rising expectations of a third round of quantitative easing – known as “QE3” – by the Fed. The US is due on Friday to release gross domestic product figures, which analysts said would influence next week’s meeting of the Fed’s rate-setting committee.

Any hint of coming fiscal problems for the US means the yellow metal could reclaim its place as a less risky asset in the mind of investors. Moreover, traders are reporting a slight pick-up in physical buying from Europe and India.

“There are increasing signs that the US will have to do more monetary policy easing such as QE3 and that change in perception has given a little boost to gold prices. It seems investors are starting to think there is some potential in gold,” said Matthew Turner, precious metals strategist at Mitsubishi Corporation.

Nic Brown, commodities research head at Natixis, said gold markets would remain fixated on the US. “‘QE or not QE?’: that is the big question at the minute,” he said.

In addition to hopes of QE, the rally in gold prices was helped by a rise in the euro against the dollar. The single currency rose more than 1 per cent against the dollar in morning trade on Thursday following comments from European Central Bank president Mario Draghi  that the ECB would do “whatever it takes” to save the euro.

Mr Brown of Natixis said the dollar weakness had been a boost for gold, as well as other commodities. “Any kind of weakness in Europe has been reflected in a decline in the euro and a strengthening of the dollar, which in recent months has actually pushed gold prices lower,” he said.

Analysts remain cautious about the outlook for gold prices, however, saying it is too early to tell if gold will regain the favour of investors, who have been frustrated by a 16 per cent fall from record highs of $1,920 last September.

Edel Tully, precious metals strategist at UBS, said: “We think that the bulk of investors are waiting for more evidence of renewed gold interest first, before a strong rally can be sustained.”

Tom Kendall, precious metals analyst at Credit Suisse, said: “We expect the market to remain capped below $1,630 for the time being; we have to see what type of data and commentary comes out of the markets next week.”