Gold prices firm, supported by monetary easing talk

Gold prices rose on Thursday on speculation that central banks may be preparing to do more in order to stimulate growth. Further monetary easing would benefit gold by boosting liquidity and maintaining pressure on long-term interest rates.

By Jan Harvey
Thu Aug 16, 2012 10:35am EDT
Reuters

(Reuters) - Gold prices firmed on Thursday on speculation that central banks may be set to launch more bullion-friendly stimulus measures to boost growth, though mixed U.S. data that dampened expectations for imminent Federal Reserve action kept prices in a range.

They broke above $1,600 in late July on talk that both the Fed and the European Central Bank would take steps to stimulate their economies, but contrasting reports on the state of the U.S. economy have since kept it in a narrow range.

Further monetary easing would benefit gold by boosting liquidity and maintaining pressure on long-term interest rates, keeping the opportunity cost of holding bullion at rock bottom, as well as fuelling inflation fears and weighing on the dollar.

Spot gold was up 0.1 percent at $1,603.90 an ounce at 1405 GMT.

Markets will be watching the Jackson Hole meeting of central bankers at the end of the month, at which more clues on the outlook for quantitative easing are expected to emerge, for clues as to the next move in gold.

"After Jackson Hole, the markets will hopefully have a better idea," Afshin Nabavi, head of trading at MKS Finance, said. "Until then, we should continue trading within this range." A lack of liquidity over the quiet summer months was preventing gold from moving higher, he said.

The dollar slipped to session lows against the euro and pared gains against the yen on Thursday after U.S. data showed the number of Americans filing new claims for jobless benefits edged higher last week.

U.S. stocks also rose at the open after the data, while Treasury yields dropped from three-month highs as investors weighed the likelihood that the Fed will launch a new bond purchase programme - quantitative easing - when it meets next month.

Softer-than-expected inflation data on Wednesday reassured investors that price pressures would not prevent the Fed from launching more QE if a more negative view of growth emerges.

"My general view is that for the time being major central banks will let go of the mandate of price stability in favor of spurring growth figures," LGT Capital Management analyst Bayram Dincer said.

"This means that the central banks in an explicit or implicit inflation targeting regime will try to anchor inflation expectations around 3.0 percent," he said. "This change would be gold price supportive."

PHYSICAL DEMAND SOFT IN Q2

A closely watched report from the World Gold Council showed on Thursday that demand for physical gold from jewellers and investors fell in the second quarter to its lowest level since the first three months of 2010.

Gold consumption fell 7 percent or nearly 76 tonnes to 990 tonnes as a drop in buying in major consumers India and China outweighed a record quarter for central bank purchases.

Gold purchases in Asia slowed after prices rebounded to more than $1,600 an ounce on Thursday, as traders await the next drop in prices and demand remains under pressure as economic uncertainties weigh on consumer sentiment.

On the supply side of the market, Canadian mining major Barrick Gold (ABX.TO) is in talks to sell all or part of its 74 percent stake in African Barrick Gold (ABGL.L) to China's largest gold producer, just two years after the underperforming Tanzanian assets were spun off.

Among other precious metals, silver was up 0.1 percent at $27.85 an ounce, while spot platinum was up 0.4 percent at $1,396.49 an ounce and spot palladium was up 0.7 percent at $576.47 an ounce.

South African police ordered thousands of illegally striking miners armed with machetes and sticks to lay down their weapons and leave Lonmin's (LMI.L)(LONJ.J) Marikana platinum mine on Thursday or face an assault by security forces.

Number three platinum miner Lonmin was forced to cease mining at its South African operations after inter-union violence broke out there. Ten people, including two policemen, have died in nearly a week of fighting between rival worker factions at the Marikana mine.

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