Gold Gets Close to 3 Month High on ECB hopes

August 22, 2012 at 10:59


Gold was steady on Wednesday near a 3-1/2 month high hit in the previous session as investors remained hopeful the European Central Bank would soon take action to contain the region’s debt crisis.

Platinum hit its highest level since early May as worries about supply disruption at a mine of Lonmin, the world’s No.3 platinum producer, lingered.

Recent media reports said the ECB has been mapping out details to cap Spanish and Italian borrowing costs, easing investor worries about the euro zone’s festering problems, though the bank tried to quash such speculation.

The prospect of an ECB intervention pushed Spanish, Italian and Portuguese yields down on Tuesday, and fuelled interest in gold, a hedge against rampant cash printing by central banks. <GVD/EUR>

“We are getting sick and tired of the crisis. We want to get rid of it,” said Dominic Schnider, an analyst at UBS Wealth Management.

But investors may be carried away with hopes that upcoming meetings in the following days among various European leaders will result in convincing solutions to the crisis, but the risk exists that the results of these meetings might still be insufficient, said Ed Meir, analyst at INTL FCStone.

“For the time being, it looks like investors are giving the Europeans the benefit of the doubt that they indeed will pull out the proverbial rabbit out of the hat,” he said in a research note.

Later in the day, investors will seek clues on the Fed’s attitude towards a third round of quantitative easing in minutes from the latest Federal Open Market Committee gathering.

The U.S. gold futures contract for December delivery edged down 0.1 percent to $1,641.20.

Technical indicators suggest spot gold could rise to $1,647, with any break above that level possibly propelling prices to $1,664, market analyst Wang Tao said.

Rising holdings of exchange-traded gold funds also reflect improved sentiment. Holdings of the SPDR Gold Trust, the world’s biggest gold ETF, have been climbing since the end of July and hit 1,278.962 tonnes by August 21, the highest level since early July.

Asia’s physical gold market has sprung into life as prices break out of their range since May.

“There has been quite a bit of scrap selling coming out of Thailand,” said a Singapore-based dealer. “We are finally out of the previous range and that will help stimulate more activity.”

Spot platinum gained 0.2 percent to $1,503, extending gains to a fifth session. The metal is poised to cross above the 200-day moving average just below $1,515, for the first time since early April.