Gold Holds On Course For Best Quarter Since 2010

September 26, 2012 at 09:07

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Gold edged up on Wednesday as recent stimulus measures by central banks supported bullion’s appeal as a hedge against inflation, although a firm dollar and a shift in investor focus to the euro zone debt crisis capped gains.

Moves by the European Central Bank and the Federal Reserve to ease monetary policy propelled gold to a 6-1/2-month high near $1,790 an ounce last week, but failed to send it above the key $1,800 level as investors looked for fresh catalysts.

Beyond the immediate consolidation, gold is expected to draw more interest as investors seek a hedge against loose monetary policies that create a low interest rate environment and raise the inflation outlook.

Also, the latest news of central banks adding to their gold reserves helped underpin sentiment for bullion.

“There aren’t many places to go for investors,” said a Hong Kong-based trader. “Buying precious metals seems to be one of the places for them to step out of fiat money. Everyone that can be in gold is in gold now.”

Fiat currencies are government-issued and their value is based on the issuer’s guarantee to pay the face amount on demand.

Investment interest in gold has surged over recent weeks, with holdings in physically backed exchange-traded gold funds hitting record highs. Speculative net length in U.S. gold futures and options are at the highest in nearly seven months.

But relatively low volatility and high selling interest in the U.S. gold options market .GVX curbed gold’s ascent, the Hong Kong-based trader said.

After the central banks on both sides of the Atlantic announced their plans on bond purchases, investors are once again concerned whether these stimulus measures will have the desired effect of boosting the global economy.

Protesters in Madrid clashed with police on Tuesday as the government prepares a new round of unpopular austerity measures for the 2013 budget to be announced on Thursday.

“In the medium to long term, global easing will be the main support for gold,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

“But in the short term, the twists and turns in the euro zone debt crisis influence the gold market.”

Worries about the euro zone sent the single currency to a two-week low against the dollar, while the dollar index .DXY rose to a two-week high, putting pressure on dollar-priced commodities by making them more expensive for buyers holding other currencies.

In South Africa, meanwhile, a strike has spread through AngloGold Ashanti’s operations and the majority of its 35,000 workers have walked out.