Gold Stays Near 18 Week High, Waits on Fed

August 24, 2012 at 10:08

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Gold was around a 4-1/2 month high on Friday and was poised for its biggest weekly rise in more than two months on investor expectations of imminent bond buying by the U.S. Federal Reserve .

The latest U.S. data sent mixed messages to investors by showing an improving manufacturing sector but a struggling labor market, after minutes released this week from the most recent Fed policy meeting expressed willingness to launch more bond buying.

“Gold has already priced the expectation for QE3 (a third round of quantitative easing), and short-covering related to the minutes has also helped gold rally over the past few days,” said Dick Poon, manager of precious metals at Heraeus in Hong Kong.

Scrap selling improved, as did purchases by investors in the physical market, after gold prices climbed for seven straight sessions and broke above a range that had been in place since May, he added.

Some analysts and traders questioned the necessity of QE3, as well as its effectiveness if launched, echoing comments by St. Louis Fed President James Bullard that the U.S. economic outlook had brightened since the policy meeting.

“Stimulus is necessary given the messy economic conditions, but the problem is that people have way too high expectations for quantitative easing,” said a Shanghai-based trader.

Technical analysis suggested spot gold could rally further to $1,693 during the day, after clearing the $1,664 resistance on Thursday, said market analyst Wang Tao.

Investors have been expecting bold action from Europe’s policy makers to boost risk appetite and in turn help gold, which has traded largely in tandem with riskier assets since late last year as a result of the tight liquidity conditions caused by the deepening debt crisis.

Spain is negotiating with euro zone partners over terms for aid to bring down its borrowing costs, though the country has not made a final decision to request a bailout.

SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund, said its holdings had risen to a 4-1/2-month high of 1,286.621 tonnes by August 23. Holdings of the fund have increased by 34.6 tonnes so far this month, compared with an outflow of more than 27 tonnes last month.

Spot silver lost 0.6 percent to $30.32 per ounce, heading for a weekly rise of more than 8 percent, which would be its largest since the end of last October.