Gold Steady as Investors Eye Central Bank Decisions

August 1, 2012 at 11:51

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Gold was locked in a tight range on Wednesday, as investors watched the U.S. Federal Reserve and the European Central Bank, whose monetary policy decisions could determine the direction of markets.

If the Fed decided to launch another round of quantitative easing, it would bolster gold’s appeal as an inflation hedge, since rampant cash printing could ultimately drive up prices.

Although the latest data showed U.S. home prices rose for the fourth month in a row in May, suggesting the recovery in the housing market continued to gain traction.

The European Central Bank’s policy meeting on Thursday will also be in the spot light, especially after its President Mario Draghi vowed last week to do everything possible to hold the euro zone together.

“ECB is the major source of uncertainty,” said Nick Trevethan, senior metals strategist at ANZ in Singapore. “The focus is whether Draghi has promised action without ensuring support from the members of the ECB governing council.”

Germany’s finance ministry reiterated its view that there is no need to grant a banking licence to the bloc’s rescue fund, triggering doubts on the ECB’s ability to take bold actions to shore up the region’s sacking economy.

“Where is the will within Europe to sort the problem out rather than just kicking it down the road? The market needs to see action.”

U.S. gold futures contract for December delivery edged up 0.4 percent to $1,617.40.

China’s official factory purchasing managers’ index fell to an eight-month low of 50.1 in July from 50.2 in June, suggesting the sector is barely growing. A separate survey showed the contraction in China’s factory activity eased in July.

Precious metals showed little reaction to the Chinese data, as the central bank actions in Europe and the United States take on paramount importance.

Asia’s physical gold market was also sluggish as market participants awaited clearer direction on prices.

“People are on the sidelines, waiting for the Fed,” said a Hong Kong-based dealer, who added that trading volumes across markets were low.