Gold at seven-month highs after Fed rate vow

Gold held around a seven-month high on Monday after a fourth consecutive weekly gain last week. Gold rose nearly 2 percent last week on news that the Fed plans to keep interest rates low, encouraging investors appeal to bullion. The central bank also committed to $40 billion in monthly purchases of mortgage-backed securities.

By Amanda Cooper
LONDON | Mon Sep 17, 2012 10:54am EDT
Reuters

(Reuters) - Gold held around seven-month highs on Monday, after a fourth consecutive weekly gain last week following the Federal Reserve's pledge to keep interest rates low which undermined the dollar and encouraged investor appetite for bullion.

The dollar fell against the euro after a measure of U.S. regional manufacturing for early September missed expectations, which offered the gold price additional support.

Spot gold was steady on the day at $1,770.40 an ounce by 10:27 a.m. EDT (1427 GMT), having risen by nearly 2 percent last week in the longest stretch of weekly gains in more than a year.

The Fed said last week it would keep U.S. rates near zero until the middle of 2015, building on its existing vow to maintain them at this level until late 2014, triggering a 2-percent rise in the gold price in one day.

The central bank also committed to $40 billion in monthly purchases of mortgage-backed securities as long as job growth was sluggish to keep borrowing rates low for homebuyers and keep credit flowing through the financial system.

"The market has to consolidate the gains it has made since the end of August. That has been already a significant move upwards for the various precious metals, so if we do not see $1,800 (in gold) this week, that would not be a problem as, nevertheless, the signs are that precious metals prices are moving higher," Peter Fertig, a consultant for Quantitative Commodity Research, said.

The Fed has already spent nearly $3 trillion on combinations of Treasury and MBS purchases in the last four years.

In this time, the gold price has doubled in value as private buyers and central banks alike have sought alternatives to the U.S. dollar in which to invest.

GOLD RISING

Gold has risen by 13.2 percent so far in 2012, putting it on course for an eleventh yearly price increase.

A Reuters poll showed the Fed will buy a total of $600 billion of bonds under its new stimulus program, known as quantitative easing or QE3, and will look for a U.S. unemployment rate of 7 percent before it halts the program.

The prospect of more support for the U.S. economy from the Fed in the form of bond buying has driven a flurry of investor demand for gold.

In the last month, holdings of gold in exchange-traded funds (ETFs) backed by physical metal have hit a record 73.58 million ounces, having risen by more than 3.0 million ounces since mid-August.

"The trend is there. We need investor confidence and sometimes, investors need to see gold going up to believe that it can go up. It could be self-fulfilling," Mitsubishi analyst Matthew Turner said.

"You would think that a pull-back (in price) would see fresh demand coming. The Fed's open-ended purchases are quite bullish even though it will mean gold will be watching the economy very closely," he said. "We have been expecting a year-end rally all year and obviously $1,800 an ounce is now easily achievable and $2,000 an ounce is back in play ," he added.

Platinum fell after two mines in South African resumed operations after suspending production last week against labor unrest sweeping through the country's platinum belt, although the situation on the ground remained tense.

Local police said they arrested more than 40 people staging an illegal strike at another mine nearby.

About 1,500 people embarked on the illegal strike at the Bafoken Rasimone mine, jointly owned by Royal Bafokeng Platinum (RBPJ.J) and top producer Anglo American Platinum (AMSJ.J).

Platinum was flat on the day at $1,694.75 an ounce, having gained in 10 out of the prior 11 trading sessions.

Operations were still suspended at Lonmin (LMI.L) (LONJ.J), the world's third-largest platinum producer, after being shuttered a month ago by a violent strike that left 45 dead and dozens injured following clashes between striking miners and police.

Since the strike broke out at Lonmin, platinum has gained nearly a quarter in value to trade at its highest since late February.

Palladium was down 0.2 percent on the day at $695.72 an ounce, while silver was down 0.3 percent at $34.48 an ounce.

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