Gold Continues Rally, Eyes Fed Posted by James Randolph on June 19, 2012
The gold market extended its rally for an eighth consecutive sessions Tuesday as investors waded a little deeper in the market with an eye toward the Fed’s meeting and hopes for stimulus
Despite a positive sentiment from the recent Greek election, the situation in Europe also appears to be supporting the gold market with safe-haven demand. Spanish government bond yields are down again and though the most recent auction showed adequate demand, there is concern of the next Spanish bond auction on Thursday.
Gold is at $1,630.55 with an intraday high of $1,632.90. The all-time nominal high still stands at $1,923.30.
Gold futures gained $4.20 to $1,631.20. The Euro dropped some of its gains against the dollar as Germany’s ZEW business index registered the current situation in both Greece and Spain.
Investors and market watchers are looking at gold and seeing its safe haven characteristics now, after the precious metal fell along with other markets in reaction to the debt problems in the Eurozone. At that time, the safe-haven seekers were drawn to US Dollar and US Treasuries.
“Gold has hardly been leading from the front as it’s been seen as a source of cash rather than a currency in its own right—but there are some signs that with ETF inventories on the rise again…that maybe, just maybe there is some fresh money coming in,” according to Simon Weeks, Director, Precious Metals Sales at Scotia Mocatta in London.
The Federal Open Markets Committee will release a policy statement at the end of its two-day meeting, which concludes on Wednesday. This is widely seen as an anticipation as the end of the Fed’s current program, “Operation Twist,” which expires at the end the June.
“A failure to confirm more asset purchase of the like could see gold dropping again. For the moment, we expect policy decisions from the Fed to influence gold price more than risk appetite linked to the Euro crisis,” said Lynette Tan, an analyst with Philip Futures in Singapore.
The Fed appears increasingly likely to offer more monetary stimulus despite political opposition, a reticence on the issue, and economists concerns about whether it will be effective.
Previous rounds of fiscal stimulus and efforts by the Fed to stimulate the economy with low interest rates have brought forward gold’s appeal as a hedge against inflation in the US Dollar.