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Gold steadies; central banks add to holdings

London, September 25, 2012

Gold steadied on Tuesday, defying a modest show of strength in the dollar, following data that showed central banks added to their bullion holdings in July and August, led by South Korea and Paraguay.

Spot gold rose 0.1 per cent to $1,767.89 an ounce by 1015 GMT. The price has risen by 4.6 per cent so far in September and is on course for a fourth consecutive monthly gain.

Gold priced in euros, which rose by half a per cent on the day to 1,370.39 euros an ounce, was less than three euros from last year's record high.

The gold price has risen by 8 percent in the last four weeks on anticipation that the US Federal Reserve will keep credit flowing through the economy and interest rates low by buying government bonds.

The Fed's pledge to buy $40 billion in mortgage-backed securities each month as long as job creation remains sluggish should protect gold from more severe sell-offs, analysts say.

"We've already seen a reasonably good run-up as the central banks have implemented various programmes across the world, so it looks to me like we've got a short period of consolidation," Daniel Smith, an analyst at Standard Chartered said.

"Ultimately, I think it's quite likely we will get above $1,800 before the year-end, so maybe a month of sideways trading possibly and then generally trending higher in the next six months to a year," he said.

The decline in the US dollar against a basket of currencies to four-month lows is a direct result of the Fed's bond-buying plans and continues to prompt foreign central banks to allocate more of their holdings in gold rather than the US currency.

Data from the International Monetary Fund on Tuesday showed South Korea raised its holdings of gold by nearly 16 tonnes in July, along with Paraguay, which raised its reserves in July from a few thousand ounces to more than 8 tonnes, continuing the trend among central banks to hold more bullion.-Reuters




Tags: banks | Gold | Securities |

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