Monday, September 10, 2012

Gold holds near six-month highs before US rate decision

LONDON, Sept 10 — Gold eased today, but stayed near six-month highs after a softer report on the US jobs market last week heightened expectations for US policymakers to signal as early as Thursday that they may take steps to keep interest rates low. Friday’s monthly US employment report showed fewer jobs were created than expected, which boosted the gold price by more than 2 per cent, its strongest one-day gain this month. Gold has risen against a backdrop of mounting expectations for support for the US economy by the Federal Reserve, possibly as early as Thursday when the central bank’s Federal Open Market Committee (FOMC) releases its decision on interest rates. Investment in gold-backed exchange-traded products reached a record high last week, while holdings of US gold futures by speculators rose to their highest in a year. Spot gold was down 0.3 per cent at US$1,731 (RM5,370) an ounce by 1425 GMT (10.25pm local time), having risen last week by 2.7 per cent, racking up a third consecutive weekly increase and its longest stretch of gains since the start of the year. “We should be in for a correction ahead of Thursday, most probably we will see gold come down to US$1,700 or even US$1,695, which would be a healthy correction, and once that is done, then those areas will be a very, very good opportunity at which to buy,” Afshin Nabavi, head of trading at MKS Finance, said. “Beyond that, I think we could test last year’s highs of US$1,920 or even higher. The only thing that is putting some doubt in my mind is that we have seen absolutely no physical demand from anywhere ... so that is why I think we should maybe have a correction so that we can capture that (consumer) interest.” Data on Friday showed the US economy created just 96,000 jobs in August, well below forecasts, which in turn heightened expectations among investors for the Fed to signal that it will announce more bond buying, or quantitative easing, this week. Since the Fed first used QE as a means to encourage growth in late 2008, gold has more than doubled in value, hitting a record US$1,920.30 an ounce last September. The ensuing low level of real interest rates, which strip out the effect of inflation, put pressure on the dollar and help to create a favourable environment for investing in gold, which profits from dollar weakness. “This revising of (US expectations) was something we thought was main event risk and also coincided with the (European Central Bank) providing a much less hostile environment for European assets and that reduces the capital flight from the euro area into the United States,” Michael Lewis, an analyst at Deutsche Bank, said. “The combination of QE (quantitative easing) and dollar weakness has reignited the interest of the private sector. Central banks and the public sector have already been aggressive buyers of gold, so it doesn’t change our view. It makes us more relaxed about the view,” Lewis said. Deutsche Bank analysts expect the gold price to average US$1,726 an ounce this year, before rallying to US$2,000 early next year, making their outlook one of the more bullish from a Reuters mid-year price survey in July.