Gold Rises For Third Day on Stimulus Expectations

July 26, 2012 at 08:38

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Gold edged up on Thursday, extending gains to a third session, as hopes of more stimulus measures from central banks to revive a flagging global economy boosted bullion’s appeal as a hedge against inflation.

Gold rose to a three-week high on Wednesday, buoyed by expectations that the  ECB will intervene to prop up the euro zone’s ailing finances after an official suggested leveraging a rescue fund to increase its capacity.

The comments by ECB Governing Council member Ewald Nowotny boosted the euro and equities, benefiting gold which in recent months has largely moved in tandem with riskier assets.

But analysts doubted the rally would have much momentum as there is little sound evidence from the ECB or the US Federal Reserve on what they plan to do to tackle the European debt crisis and shore up the frail economy.

“Spain’s public finance problems as well as poor data from the region led investors to believe that the ECB will intervene, but the foundation of this rally is rather shaky,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

“The Fed is still ambiguous on further monetary easing and the economic conditions have not deteriorated much. As a result, gold doesn’t have much potential on the upside for now.”

Technical analysis suggested that spot gold faces resistance zone of $1,608-$1,615, and could retrace to $1,589 an ounce during the day, said market analyst Wang Tao.

Gold in the past few months has lost its safe-haven appeal to assets such as the dollar and US Treasuries that are perceived safer by investors.

Its fortunes now hinge on whether the US central bank will embark on another round of quantitative easing, dubbed as QE3, which would raise inflation outlook and attract investors to buy gold.

Bullion rose more than 2 per cent so far this year, leading the precious metals complex, but was outpaced by a 4-per cent gain in the dollar index.

Investors are eyeing the Fed’s policy meeting next week, seeking clues on its attitude towards QE3.

“We are going to be stuck in a $75, $100 range above $1,550 before the FOMC meeting outcome,” said Ronald Leung, a dealer at Lee Cheong Gold Dealers in Hong Kong.

Physical dealers said scrap selling started to build up since late on Wednesday, but slowed down as a price rally stalled.

“We might see a bit more selling if prices stay above $1,605 an ounce,” said a Singapore-based dealer.