Gold rises for seventh day after Federal Reserve's stimulus surprise

Last Updated: Thu, Aug 23, 2012 22:54 hrs

Gold rose for a seventh day on Thursday after minutes from the US Federal Reserve’s most recent policy meeting gave an unexpectedly clear signal that the central bank may take additional measures to boost the economy.

Platinum gained 1.1 per cent, rising for a sixth day to a 3-1/2 month high, lifted by current tension in some of the mines in top producer South Africa, where 44 people have died in clashes between striking workers and police.

Gold has more than doubled in value since the Fed first resorted to buying Treasuries to pin down interest rates and encourage growth in late 2008 and this year, has struggled to remain in positive territory in the absence of any clear commitment from the US central bank to resume the practice. The minutes of the Federal Open Market Committee’s meeting at the end of July showed on Wednesday the central bank is likely to deliver another round of stimulus “fairly soon” and that any such decision would be highly dependent on economic data.

Analysts said that while the signal that additional stimulus for the US economy was positive for gold in the near term, the most recent read on key indicators such as consumer spending, manufacturing or jobs growth since the Fed's last meeting pointed to a more robust phase of economic growth and as such, gold's gains could be limited.

Spot gold was up 0.6 per cent at $1,662.81 an ounce by 0917 GMT, having risen by three per cent so far this week, which has put the price on track for a 3.1 per cent gain in August, which would be the largest monthly gain since January's 11 per cent increase. “The market should be a bit cautious here and not run too far ahead of itself because we have seen economic data pick up and improve since that last meeting,” Saxo Bank senior manager Ole Hansen said. “We do need to see gold's fundamentals supporting the move. There is no doubt we have been stuck in a range for so long, we needed to see some follow-through...I think gold has another $15 in it or so, we could see $1,680, but I think that would be it,” he said.

A rise in the euro helped improve demand for gold, ahead of meetings between Greek Prime Minister Antonis Samaras and other European leaders as Athens seeks more time to meet its bailout commitments.

Central Bank expectations are running high for some sort of support from the European Central Bank for the more indebted members of the euro zone, such as Spain and Italy, which have seen their borrowing costs on the capital markets to around their highest since the launch of the euro in 1999.

Central bank sources told Reuters the ECB is considering setting a yield target on purchases under a new bond buying programme, without making the levels public. Gold priced in euros rose for a seventh day by 0.4 per cent to 1,325.41 euros an ounce and is now less than 4 per cent below last September's record of 1,373.92 euros. "The Fed's tone is totally different in the minutes from previous comments, and that helped gold break from the previous range and move into a higher price range ahead of the peak consumption season," said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen. In spite of the high degree of uncertainty among investors in recent weeks over the likely course of U.S. monetary policy, their demand for gold has not lessened. Holdings of gold in exchange-traded funds hit a record 71.24 million ounces by Wednesday's close, having risen by over 600,000 ounces this week so far, marking the largest weekly rise since early February. The Fed's nod to further stimulus measures coming sooner rather than later lifted the entire precious metals complex, with silver rising 2.0 percent on the day $30.42 an ounce, its highest since early May. Platinum rose 0.7 percent to $1,542.20 an ounce, having touched a session peak of $1,558.49, its highest since May after a strike that started last week at world number three producer Lonmin's Marikana mine erupted into deadly violence. "The production issues in South Africa so far may not be enough to turn this year's surplus into a deficit," HSBC analysts said in a note, referring to the overhang of metal that may exceed demand by as much as 400,000 ounces this year. "However, it appears that the recent run-up in platinum prices maybe the result of longer-term buyers entering into the market as ongoing production issues may further tighten the supply and demand balance in 2013," they said. Palladium was up 0.5 percent at $631.60 an ounce.

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