Gold holds ground ahead of Fed decision on stimulus

Tags: Gold, Commodities
Gold edged higher on Wednesday after the previous day's slide, ahead of a key U.S. Federal Reserve decision on when to begin rolling back its massive monetary stimulus.

The Fed will issue a statement at the end of its two-day policy meeting on Wednesday at 1900 GMT, the last one in a year in which financial markets have been extremely sensitive to any comments on the outlook for the stimulus.

The $85 billion in monthly bond purchases have been a major supporter of global commodities such as gold.

Most economists polled by Reuters last week expected the tapering to begin only in March, but some say there is a still a chance of a stimulus cut immediately.

"A small-scale reduction may cause gold to fall to a range $30-$60 lower than its current range but knee-jerk reaction the likes of April and June is less likely," said Joyce Liu, an investment analyst at Phillip Futures Pte Ltd.

The markets are well-prepared for a small reduction in stimulus given the Fed's earlier comments, Liu said.

"The market is unlikely to head straight into another selling frenzy on fears of rising interest rates, but is still likely to pull funds out of speculative and leveraged instruments," she said.

Spot gold edged up 0.3 percent to $1,233.10 an ounce by 0252 GMT, after dropping 0.8 percent in the previous session.

The metal has lost about 26 percent of its value this year on growing concerns that an improving U.S. economy could prompt the Fed to scale back its bond purchases.

Fed Chairman Ben Bernanke had said in June the bank will begin slowing the pace of bond purchases later this year and would likely end the program by mid-2014.

However, he later said the Fed needs to see more evidence of economic growth for the tapering to begin, causing uncertainty in markets.

Data showed that investors continued to dump bullion for other assets. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 2.08 tonnes to 816.82 tonnes on Tuesday - to fresh lows since January 2009.

Physical demand has been quiet as consumers await prices to drop further after the Fed meeting.

In China, the world's biggest bullion consumer, trading volumes on the Shanghai Gold Exchange were low.

Volumes for 99.99 percent purity gold have averaged 7 tonnes per day so far this week, compared to last week's daily average of 14 tonnes.

Post new comment

E-mail ID will not be published
CAPTCHA
This question is for testing whether you are a human visitor and to prevent automated spam submissions.

EDITORIAL OF THE DAY

  • The budget is sound in logic; the market is too clever by half

    For a man derided by former finance minister P Chidambaram for his knowledge of economics as only sufficient to be scribbled on the back of a postage

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

Chander Mohan Sethi

CMD, Reckitt Benckiser India

COLUMNIST

Arun Nigavekar

Why higher education needs innovation

India is such a great country that it creates complexity ...

Zehra Naqvi

We must overcome the fear of death

It is the biggest irony that the only thing that’s ...

Dharmendra Khandal

Jawai leopards and locals can coexist peacefully

At first glance, the Jawai landscape seems like a large ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture