SG:Gold rises for 3rd day on stimulus expectations
Reuters reported that gold edged up extending gains to a third session as hopes of more stimulus measures from central banks to revive a flagging global economy boosted bullion’s appeal as a hedge against inflation.
Gold rose to a three week high on Wednesday, buoyed by expectations that the European Central Bank will intervene to prop up the euro zone’s ailing finances after an official suggested leveraging a rescue fund to increase its capacity.
The comments by ECB Governing Council member Mr Ewald Nowotny boosted the euro and equities, benefiting gold which in recent months has largely moved in tandem with riskier assets.
But analysts doubted the rally would have much momentum as there is little sound evidence from the ECB or the US Federal Reserve on what they plan to do to tackle the European debt crisis and shore up the frail economy.
Mr Chen Min an analyst at Jinrui Futures in the southern Chinese city of Shenzhen said that “Spain’s public finance problems as well as poor data from the region led investors to believe that the ECB will intervene, but the foundation of this rally is rather shaky. The Fed is still ambiguous on further monetary easing and the economic conditions have not deteriorated much. As a result, gold doesn’t have much potential on the upside for now.”
Spot gold inched up 0.1% to USD 1,605.89 an ounce by 0646 GMT after rallying to 3 week top of USD 1,609.91 on Wednesday when it notched up its biggest daily per centage rise in about a month. US gold futures contract for August delivery lost 0.2% to USD 1,605.30.
Reuters market analyst Mr Wang Tao said that technical analysis suggested that spot gold faces resistance zone of USD 1,608 to USD 1,615 and could retrace to USD 1,589 an ounce during the day. Gold in the past few months has lost its safe haven appeal to assets such as the dollar and US Treasuries that are perceived safer by investors.
Its fortunes now hinge on whether the US central bank will embark on another round of quantitative easing, dubbed as QE3, which would raise inflation outlook and attract investors to buy gold. Bullion rose more than 2 per cent so far this year, leading the precious metals complex, but was outpaced by a 4-per cent gain in the dollar index.
Mr Ronald Leung dealer at Lee Cheong Gold Dealers in Hong Kong said that “We are going to be stuck in USD 75, USD 100 range above USD 1,550 before the FOMC meeting outcome.”
