Gold creeps higher in run-up to US Fed policy announcement
London (Dec 18) Gold firmed a touch on Wednesday ahead of a keenly awaited policy announcement from the Federal Reserve, as investors awaited further clues on when the US central bank will trim its monetary stimulus programme.
Speculation that the Fed will taper its $85bn monthly bond purchases, in a move away from the ultra-loose monetary policy that sent gold prices to record highs in 2011, has knocked the metal 25% lower this year.
Concern that this fall had been overdone prompted a wave of short covering last week, lending some support to prices. They are likely to tread water along with the dollar until the Fed’s statement is released at 7pm GMT.
Spot gold was up 0.3% at $1,233.19 an ounce at 10.32am GMT, while US gold futures for February delivery were up $2.80 an ounce at $1,232.90.
"Tapering has been like the sword of Damocles holding above gold’s head for so long now. Once it is behind us, we will have some certainty over what will come," Sharps Pixley CEO Ross Norman said.
"Ultimately what will determine gold’s direction in the immediate aftermath of the announcement will be the US dollar, and how it responds," he said.
"Normally the gold market would have quietened down at this time of year, but you feel that gold is holding on for this last hurrah."
Trading on financial markets was cautious as investors awaited the Fed’s policy decision and an outside chance it could announce it was trimming its massive stimulus programme immediately.
European shares edged higher, helped by a strong German business sentiment survey, but moves in the dollar and benchmark US and European government bonds were tight.
Physical gold fund holdings drop
Investment interest in physical gold funds continued to wane, with the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Shares, reporting another 2.1-tonne outflow from its holdings on Tuesday.
China — the world’s biggest bullion consumer — saw trading volumes for 99.99% purity gold pick up on Wednesday to about 13 tonnes from Tuesday’s eight tonnes.
Indian demand remained depressed by a lack of stocks in the market, which kept premiums high. India’s government raised import tariffs on gold earlier this year and tied imports to export volumes to reduce the country’s current account deficit.
An official from the Reserve Bank of India said on Wednesday it would be premature to remove the curbs on imports.
"We think (Indian) gold imports should start to pick up in recent months regardless of policy as the industry adapts to the new measures," Macquarie said in a note on Wednesday. "But government policy will remain the key determinant."
Gold exports from Australia, the world’s second-biggest producer of the metal after China, are set to drop 4% in 2013/14 to 270 tonnes, Australia’s Bureau of Resources and Energy Economics said on Wednesday.
Silver was up 0.3% at $19.95 an ounce, while spot platinum was up 0.4% at $1,350.74 an ounce and spot palladium was up 1% at $704.40 an ounce.
Palladium fell 2.3% on Tuesday to its lowest in two months, after breaking through technical support at $705.50, its early December low, analysts said.
