INV: Gold spot price near 5-week high ahead of FOMC meeting
iNVEZZ.com, Monday, October 28: The gold spot price has been trading around five-week highs today, supported by bets that the US Federal Reserve will this week keep its ultra-loose monetary policy at its current levels. The Fed policymakers meet tomorrow and Wednesday to review the central bank’s policy stance and the state of the US economy.
As of 11:34 GMT today gold was trading at $1,350.64 after having risen to $1,355 an ounce on Friday, its highest level since September 20.
FOMC meeting
The focus this week will be on the Federal Open Markets Committee meeting, which is expected to provide some sort of guidance on the Federal Reserve’s plans for its quantitative easing programme. The stimulus programme, through which the Fed currently buys $85 billion in Treasury and prime mortgage debt every month, has in the past several years been a key contributor to gold’s 12-year streak of gains. The precious metal has struggled this year since expectations – generated by the Fed itself - that wind-down of the stimulus programme would start at some point later in the year. This sentiment has been reversed though as a result of the partial federal government shutdown and recent releases of mixed US economic data. The prevalent market expectation now is for the Fed to postpone tapering until well into 2014.
Reuters quoted Brian Lan, managing director of GoldSilver Central Pte Ltd, as saying: "We believe the tapering will definitely be delayed and that's positive for precious metals." Lan expects that the gold price “will close above $1,400 by the end of the year”.
Physical demand
This week traders will also be monitoring closely physical demand in Asia, which has been softer because of the higher gold prices.
"Physical demand is quiet because of higher prices. The only market that is buying is India," said Brian Lan.
In India, the world’s largest gold buyer, premiums soared to a record high of $130 an ounce last week, driven to government restrictions on gold imports that are squeezing supplies ahead of the Diwali festival of lights in November.
Premiums on the Shanghai Gold Exchange fell into negative territory on Monday, although they later recovered to about $1 an ounce, far off the highs seen in April-May when premiums in Shanghai reached $30 an ounce.
