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Gold perched at $1,641 on equities, all eyes on Fed

Published: April 25, 2012 | 8:15 am
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Gold held around $1,641 per ounce on Wednesday, underpinned by stronger equities, but investors were also looking for hints of another round of quantitative easing when the U.S. Federal Reserve ends its two-day meeting.

Previous rounds of asset purchases by the Fed weakened the dollar and boosted U.S. and global stocks. The central bank is expected to reiterate its intent to keep benchmark U.S. interest rates near zero over the next two years, which could burnish gold’s safe-haven appeal.

Bullion struck a 2012 high around $1,790 in late February after the Fed at the time said it would keep interest rates near zero until at least by the end of 2014.

Gold hardly moved at $1,641.31 per ounce by 0632 GMT, having risen as high as $1,648.91 on Tuesday as the Dow .DJI and the S&P 500 .SPX jumped after strong earnings and upbeat outlooks from big manufacturers.

“I don’t think they will announce the QE3, but Bernanke’s speech may offer some hints. We don’t know, but we can see that other nations have already cut interest rates,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

“I think $1,650 or $1,655 will be the cap for the time being. We can see the downside at $1,625.”

The Fed is due to release a statement outlining its views on policy and the economy at about 1630 GMT, followed by a news conference by Fed Chairman Ben Bernanke, who is likely to be peppered with questions on the chances of more easing

Shares rose across Asia ahead of the Fed’s policy meeting, boosted by firm U.S. corporate earnings, signs of an improving U.S. housing market, and healthy demand for euro zone sovereign debt.

Despite occasional support from equities, a brighter U.S. economic outlook and subsiding risks from the European debt crisis have reduced investor interest in gold, dealers said.

In the Netherlands, the biggest opposition parties refused on Tuesday to back austerity cuts needed to meet EU budget targets after the government fell, deepening the crisis in a nation probably facing a long period of uncertainty until elections.

“As long as interest rates are low it’s good for commodities, but it seems the euro zone is suffering,” said Leung of Lee Cheong Gold Dealers.

“Speculators are not as aggressive as they used to be; they just wait and see. They are looking at the stock market and maybe bonds. The stock market in the U.S. is not performing too badly this year.”

U.S. gold futures for June were at $1,642.20 per ounce, down 0.10 percent.

Price volatility could spike ahead of Wednesday’s May COMEX options expiry, as call and put options investors look to profit from heavy bets at the $1,650 strike price. There are currently about 10,000 lots in calls and about 30,000 contracts in puts at the popular price, traders said

“Last night, customers sold gold when it rose to $1,648, but this morning we’ve seen buying from Indonesia and Thailand, although the volume is low,” said a physical dealer in Singapore.

“Most people actually expected gold price to come down, that’s why they are not so keen to enter the market. There’s a bit of buying from India,” said the dealer, referring to the world’s top consumer.

Argentina added to its gold reserves in September 2011 as the price began to retreat from record highs, International Monetary Fund and government officials said on Tuesday, reporting the country’s first such purchase in six years.

reuters

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