Gold Stays in Range as South Korea Adds 16 Tonnes

August 2, 2012 at 07:33

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Gold found support at $1,600 an ounce on Thursday, although was capped by uncertainty on whether the European Central Bank will take bold action to tackle the region’s debt crisis after the U.S. central bank dashed hopes of any imminent stimulus.

The Fed stopped short of offering new monetary easing after a two-day meeting, even as it acknowledged a weakening economy and signaled more strongly that further bond buying could be in store to help shore up the economy.

”Investors took profit yesterday after the Fed meeting. If the ECB announces any helpful measures, it will likely pressure the dollar and help the gold,” said Lynette Tan, an analyst at Phillip Futures in Singapore.

But after ECB President Mario Draghi vowed last week to go all-out to preserve the euro, market expectations for bold and imminent actions run high and any ECB announcement short of that expectation would greatly dismay the markets, analysts said.

Technical analysis suggested that spot gold will be neutral above the $1,592 level, said market analyst Wang Tao.

The inverse correlation between the dollar and gold reached the highest level since the beginning of the year. The correlation reading stood at -0.756, while a reading of -1 suggests a perfect inverse correlation whereby one asset rises and the other falls.

The dollar index .DXY hit a one-week high after the Fed gave few hints of more stimulus, putting pressure on dollar-priced commodities, as they become more expensive for buyers holding other currencies.

Supporting sentiment for gold, South Korea’s central banks said it bought 16 tonnes of gold in July, boosting the country’s gold holdings by nearly 30 percent to 70.4 tonnes as it aims to diversify its foreign reserves.

It was the second time that South Korea has bought gold in less than a year, after Russia said it had added 6.2 tonnes to its gold reserves in June.

But the gold market showed little reaction to the news, as the ECB meeting dominated the market’s focus.

“People expect earthquakes from the Europe situation,” said a Singapore-based trader, adding that the poor performance of commodities has burned fund investors, who were now nursing losses on the sidelines.

“A lot of people are sidelined and not that inclined to get back in without someone else giving it a kick start.”