Gold Firms Up

September 21, 2012 at 07:28

truthing

Gold firmed on Friday, reversing two straight sessions of losses, as investors pinned hopes on recent central bank moves to further lift sentiment in precious metals.

Gold has been hovering near a 6-1/2-month high of $1,777.51 an ounce, hit after the Federal reserve announced a new round of quantitative easing and pledged to keep rates low until mid-2015, boosting interest in gold which benefits from a low-interest environment.

“The long-term inflation outlook as a result of QE (quantitative easing) is keeping gold sentiment buoyed,” said a Shanghai-based trader.

“We need to look at the inflation data from the United States and Europe in the next few months to see if the easing measures have any impact, and if gold prices can go much higher.”

Data on Thursday showed that U.S. manufacturing sector suffered its weakest quarter in three years, while the economies of China and Europe slumped, triggering expectations on more stimulus measures from centrals in these economies.

Rekindled interest in precious metals has lifted holdings of physically backed exchange-traded gold and silver funds to the highest in about a year.

SPDR Gold Trust, the world’s largest gold ETF, said its holdings had hit 1,308.41 tonnes, the loftiest since last August. Holdings in iShares Silver Trust, the world’s biggest silver ETF, climbed to a 11-month high of 9,940.66 tonnes by Sept 20.

The Relative Strength Index on spot gold stood at 76. A reading above 70 suggests the underlying asset is overbought, and the RSI on gold has been above 70 since at the end of August.

But gold will remain attractive to investors seeking to hedge against future inflation, or looking for alternative investment in a low interest rate environment, traders said.

“We are not overbought, and there is still room for more money to enter the gold market,” said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo, adding that the net long positions in U.S. gold futures and options were way below a peak last year before gold struck a historical high above $1,920.

The net length in U.S. gold stood at 165,724 contracts by September 11, more than doubled from the level in mid-August but 35 percent lower than the peak of 253,653 contracts last August.

The U.S. Commodity Futures Trading Commission is due to release this week’s trader commitment data later in the day.

Spot platinum rose nearly 1 percent to $1,636.24, but was headed for a weekly loss of 4 percent — its biggest one-week decline in four months. The labor disputes in top platinum producer South Africa’s mining sector, however, are expected to lend support to prices.