Gold Gains as German, French Data Boost Euro

August 14, 2012 at 10:10

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Bullion was also aided by hopes that central banks from the United States, Europe to China will launch stimulus measures to buoy their economies, which will boost the inflation outlook and lure investors to gold, seen as a good hedge against inflation.

“There is the perception of central bank easing, but there is also the risk that people may be disappointed,” said Nick Trevethan, senior commodity strategist at ANZ in Singapore, adding that the U.S. Federal Reserve might save the quantitative easing tool for more dire economic conditions.

“These stimulus measures have a diminishing effect. Are you going to waste the last bullet until it is absolutely necessary? Definitely not.”

Market participants are now waiting for the euro zone’s gross April-June domestic product data which is expected to show a contraction. However, this pessimism softened when Germany reported a growth of 0.3 percent and France managed to avoid a contraction.

The euro hit its highest level in nearly a week, while the dollar index .DXY dropped 0.3 percent. A weaker dollar makes commodities priced in the greenback cheaper for holders of other currencies.

“Gold is likely to remain in the range of $1,600 and $1,630 an ounce while people wait for central bank actions,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong, adding that buying interest from Shanghai had ebbed after prices failed to push through the $1,625 level over the past two days.

Trading volumes on the popular gold spot deferred contract on the Shanghai Gold Exchange stood at 9,650 kilograms, with the average daily volume last week at 10,442 kilogram — down more than a third from last month.

Technical charts suggest that spot gold will be stuck between $1,605.20 and $1,627 during the day.