Gold Waits on Fed

December 11, 2012 at 10:31

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Gold inched lower on Tuesday but sentiment was underpinned ahead of a U.S. Federal Reserve meeting where policy makers are expected to announce more stimulus measures, a move that would support gold’s appeal as a hedge against inflation.

Many economists expect the Fed to announce monthly bond purchases of $45 billion after its meeting on Tuesday and Wednesday. Gold benefits from an easy monetary policy as investors fear that rampant cash printing will damage the value of fiat currencies, prompting them to seek safety in hard assets such as bullion.

Gold has risen more than 9 percent so far this year amid monetary easing policies by the world’s central banks, especially the Fed and European Central Bank.

“People have realised that what the Fed has been doing is damaging to price stability,” said Dominic Schnider, an analyst at UBS Wealth Management in Singapore, adding that recent jumps in U.S. gold coins showed investors’ worries about the consequences of Fed’s unconventional monetary policy.

But Schnider also said he was disappointed at gold’s recent performance, as neither the dragging U.S. budget talks nor a relatively soft dollar appeared to inspire gold buying. Bullion posted two straight months of losses in October and November.

Holdings of gold-backed exchange-traded funds edged down to 76.177 million ounces on Dec. 9, after hitting consecutive record highs since mid-November despite stagnant prices.

By comparison, investors in U.S. gold futures and options slashed their net length by a quarter in the week ended Dec. 4, data from the U.S. Commodity Futures Trading Commission showed.

Both platinum and palladium hit multi-month highs in the previous session, encouraged by strength in base metals and brightened outlook on the Chinese economy.

The higher prices triggered some profit-taking selling interest, traders said.

“There has been some noticeable interest in physical PGM (platinum group metals) selling,” said a Tokyo-based trader, adding that the overall trade flows will slow down towards the end of the year.