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Gold Slips as Hopes Fade For Immediate U.S. Monetary Stimulus
Gold prices eased in Europe on Wednesday, extending the previous session’s losses, after Tuesday’s stronger-than-expected U.S. retail sales data dampened speculation for another round of monetary easing from the Federal Reserve.
Hopes that the European Central Bank could launch extraordinary measures to tackle the euro zone debt crisis and support its ailing economy kept the metal firmly underpinned near $1,600 an ounce, however.
“Repeated flashes of better-than-expected economic data from the United States are surely quashing the immediate possibility of QE,” Richcomm Global Services analyst Pradeep Unni said.
However, he added, “likely stimulus packages from Europe and the UK are supporting gold”.
“Any accelerated rally is unlikely to sustain, and gains beyond 1630 seems to be a near impossibility unless QE is announced from either the EU or the U.S.. Gold is supported at 1585-1590,” he said.
Further monetary easing – printing money to buy bonds – would boost liquidity while maintaining pressure on long-term interest rates and fuelling fears inflation could rise in the longer run. All these factors support gold.
Financial markets will be closely watching U.S. data due later, including consumer inflation numbers, real earnings and the New York Fed Empire State manufacturing index, for clues as to the likelihood of another round of stimulus measures.
Global growth concerns hit shares in Europe and Asia on Wednesday, while expectations of central bank action to stabilise the euro zone debt crisis propped up the euro and tempered demand for German bonds.
The single currency held steady against the dollar, with investors wary of selling it aggressively due to the prospect of ECB restarting bond buying to curb high Spanish and Italian borrowing costs.
“The euro zone appears to continue to struggle, while the U.S. keeps surprising the market with positive figures,” London’s Marex Spectron said in its morning note. “This only enhances the chance that the European Central bank is more likely to act before the Fed.”
Investors retained an appetite for gold despite its soft performance in the first half of this year, a U.S. regulatory filing suggested on Tuesday.
Hedge fund manager John Paulson raised his stake in the SPDR Gold Trust, the largest in an unrelated group of funds that issue securities backed by physical metal, in the second quarter of this year for the first time since the first quarter of 2009.
Billionaire financier George Soros more than doubled his shares in the ETF while Eton Park Capital’s Eric Mindich had dissolved his stake by the end of the second quarter.
Platinum prices held firm after climbing nearly 1 percent a day earlier on the back of supply disruption at number three platinum miner Lonmin.
The company was forced to freeze mining at its South African operations after violence between rival unions killed at least nine people. Lonmin, already struggling with low prices and weak demand, may miss its annual production target of 750,000 ounces.
“As the situation currently stands, the likely impact on production is not yet sufficient to materially affect platinum’s supply and demand balance, and this is reflected in platinum’s muted reaction,” UBS said in a note.
“But the risk of contagion across the South African platinum sector cannot be ruled out. Should the situation escalate further and spread to other major producers, a more significant platinum price response could be expected.”
The gold/platinum ratio, or the number of platinum ounces needed to buy an ounce of gold, eased back to 1.15 on Wednesday from a 27-year high of 1.17 on Monday, when gold’s absolute premium to platinum broke above $230 an ounce.