Gold Rangebound Stimulus Hopes Support

July 30, 2012 at 09:58

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Gold traded in a range in Asia Monday, with light profit-taking weighing on prices, but expectations for additional stimulus from the central banks this week will likely cap downside.

“There are reasonable expectations that there will be some stimulus from the European Central Bank and the Fed,” a Hong Kong-based trader said.

The Federal Reserve’s rate-setting committee will be starting a two-day meeting Tuesday, while ECB is expected to meet Thursday.

Hopes of monetary stimulus have supported prices in the past, as some investors consider the metal to be a hedge against inflation when more liquidity is pumped into the financial system.

However, there could be some modest profit-taking ahead of the meetings as the metal has risen for the past few sessions, the trader said, adding that there is a possibility of a slide to the $1,600-$1,610/oz area.

Hopes of more purchases by central banks have supported gold and other risk assets in the past few sessions, but any disappointment could lead to prices sliding below $1,600/oz, market participants said.

However, a fall below that level “would offer investors another opportunity to buy at lower prices in advance of the next big move up,” American Precious Metals Advisors Managing Director Jeffrey Nichols said in a report.

Some traders expect strong buying between $1,565 and $1,570, with central bankers likely to enter the market at these levels.

In India, historically the top consumer, there has been “renewed interest” in gold exchange-traded funds after last week’s rise, Insignia Consultants Director Chintan Karnani said.

“Gold ETF demand in India will rise further over the coming weeks if prices show an upward trajectory and stock markets remain stable,” Mr. Karnani said, adding that there have been more client enquiries about short-term investment options in the precious metal.

Silver closed Friday at $27.79/oz, the highest weekly close since mid-June, and will likely move toward $28.44/oz this week, Scotiabank analysts said.

Spot silver was at $27.66/oz, down 13 cents from its previous close.