ET:Gold climbs to near 5-week high on Fed stimulus hopes
SINGAPORE: Gold gained for a fourth session on Tuesday, edging closer to a five-week high, as weak US economic data boosted expectations for the Federal Reserve to maintain its stimulus measures, burnishing the metal's appeal as an inflation hedge.
The Fed begins a two-day policy meeting on Tuesday in which it is widely expected to confirm it will continue buying bonds at an $85 billion monthly pace. Gold prices have fallen nearly 20 per cent this year on fears the Fed could begin tapering the stimulus, but a budget battle in Washington and a string of weak economic data have raised questions over whether it will scale back, giving bullion a boost.
"In line with market expectations, we think the Fed will continue with quantitative easing," said Songwut Apirakkhit, managing director of Globlex Holding Management in Bangkok.
"However, we think the expectations have already been priced in and gold is due for a correction," he said. He still expects gold to end the year around current levels. Spot gold had edged up 0.1 per cent to $1,353.46 an ounce by 0740 GMT.
It has gained about 8 per cent since marking a three-month low on Oct. 15. The metal earlier hit a session high of $1,360.06, not far from its five-week peak of $1,361.60 touched on Monday.
US manufacturing output barely rose in September and contracts to buy previously owned homes recorded their largest drop in nearly 3-1/2 years, the latest signs the economy's momentum ebbed as the third quarter ended. Many economists believe the Fed could push tapering to early next year. Though a prolonged period of easy money could support gold, physical demand could take a hit due to the higher prices. Demand in Asia has been subdued for a while.
"We continue to view gold as precariously placed, while physical demand for the metal remains soft," ANZ analysts said in a note. "We viewed the metal as overbought above $1,340 on the back of weak demand from China and continued ETF selling." Outflows from gold-backed exchange traded funds have continued, weighing on investor sentiment.
