Gold bounces on Fed reassurance, firm equities
Singapore, April 26, 2012
Gold edged up on Thursday on gains in equities and expectations the US Federal Reserve could do more if necessary to lift the economy, recouping earlier losses triggered by a lack of surprises from the central bank's meeting on interest rates.
The Fed has already engaged in two rounds of asset purchases totalling $2.3 trillion, known as quantitative easing, to drive down interest rates and stimulate the economy. The latest QE helped push up commodity prices by providing cheap money to investors who placed it in riskier assets.
Fed Chairman Ben Bernanke said US monetary policy was "more or less in the right place" even though the central bank would not hesitate to launch another round of bond purchases if the economy were to weaken.
Gold added $3.54 an ounce to $1,647.52, having fallen to a low of $1,641.15 earlier.
It hit a low at $1,623.90 on Wednesday in a knee-jerk sell-off after the Fed disappointed investors who had hoped for another round of asset purchases.
"I think going forward; gold will probably trade in the direction of where the macro-economy is going. If we hear fresh news from the euro zone that the debt crisis is re-emerging, then we could see some safe haven demand," said Lynette Tan, an analyst with Phillip Futures.
"I am still looking at gold to trade in a range of $1,600 to $1,660. For Q2, I am not looking at gold to make large price moves. Recently, physical demand for gold has fallen, especially in India, which means gold will lack the physical support that it needs to move prices higher."
Sales for Akshaya Tritiya, the second biggest gold buying festival in top gold consumer India after Dhanteras, are estimated to have fallen by a half to 10 tonnes this year on high prices and as inflation crimped savings.
Gold prices, which have tended to follow riskier assets, found support from firm equities markets.
Shares across Asia gained on Thursday, retaining positive momentum as the Fed reassured markets that it will keep its very accommodative stance to support growth, while optimism grew over strong quarterly corporate earnings.
Gold rallied to 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.
The physical market was largely deserted as jewellery makers watched gold prices gyrate. "Demand is slow. We've seen good profit takings from Thailand, but there's nothing from Indonesia," a dealer in Singapore said.
Investors will scrutinise efforts by Europe to solve the debt crisis after European Central Bank President Mario Draghi called for a "growth compact" but put the onus on euro zone governments to shape-up their economies.
Bullion raced to a record of around $1,920 last September on fears the euro debt crisis could stall global growth.
"We think that in the days ahead, focus will revert to the still-festering European debt crisis and the fact that we are in a synchronised global slowdown, likely keeping pressure on the central banks to remain accommodative," INTL FC Stone analyst Edward Meir wrote in a note.
"In addition, European elections, at least from what we have been able to judge thus far, are generating a strong backlash towards austerity measures and a clear desire to pursue more definitive growth policies."
US gold for June added $6.40 to $1,648.70 an ounce.
In the currency market, the US dollar floundered at three-week lows against a basket of major currencies after the Fed did little to alter the perception that it remained deeply committed to a dovish policy stance. – Reuters