Gold Tracks Equities Higher

October 25, 2012 at 09:34

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Gold climbed on stronger equities on Thursday, but was still within sight of its weakest level in seven weeks as the US Federal Reserve helped boost the dollar’s safe-haven appeal by announcing its commitment to economic stimulus measures.

“I think $1,700 is still quite a key support level. Generally gold has been falling due to the dollar strength. Recently, we also saw some stronger economic data coming from the US,” said Lynette Tan, senior investment analyst at Phillip Futures in Singapore.

“I expect that around the $1,700 level, we could also see some bargain hunting,” Ms Tan said, adding that a firmer rupee could help boost demand from top consumer India during the festive season.

In a statement after a two-day meeting, the Fed repeated its vow to keep rates near zero until mid-2015 and its pledge to keep supporting growth while the recovery strengthens.

Despite the absence of surprises, the outcome should give investors confidence to use the dollar as a funding currency for carry trades. The dollar index eased from a peak of 80.151 to 79.850, but was still above last week’s trough of 78.935.

In other markets, shares in Asia inched up Thursday as signs of recovery in China and the US eased fear of deteriorating global growth, though generally weak corporate earnings continued to make investors wary.

A lack of activity in the physical sector suggested some consumers expected gold prices to fall again. Gold has come under pressure this week from concern about the global economic slowdown after a trail of disappointing US corporate earnings.

“We were surprised to see profit-taking from Indonesia yesterday. It’s all quiet and the demand is not there. I spoke to a couple of clients and they told me the price should weaken again,” said a physical dealer in Singapore.

“But India should come back to the market because Diwali is coming. We should be expecting a big volume of sales or a last minute rush before the celebration,” said the dealer.

The festive season in India will peak in November with Diwali. Weddings also take place during this period, with gold jewellery an essential part of the dowry Indian parents give to their daughters.