Gold Spot Price: Peaking Briefly above $1,400
CHICAGO (Aug 26) Weak US homes sales data released on Friday and inflows into the world’s largest gold-backed exchange traded fund propelled gold price above the key barrier of $1,400 an ounce until it reached an 11-week high in Asian trading today. However, bullion retreated from the peak as uncertainty over the timing of US Federal Reserve plans for reduction of its gold-friendly stimulus programme once again weighed on the price.
Sudden rally
Gold gained 1.6 percent on Friday after a decline in US new home sales in July turned out to be greater-than-expected, thus potentially weakening the case for the US central bank to scale back stimulus measures known as quantitative easing. The precious metal maintained its upward momentum in today’s Asian trading and reached $1,406.01 per ounce, its strongest level since June 7. But it quickly retreated to mid-$1,390s after the rally ran out of steam.
The gold price could be found at 1,396.43 per ounce as of 15:30 BST.
"The market is very nervous and unsure, therefore we need a direction. (The) Fed and U.S. dollar seem to be it for the time being," said Afshin Nabavi, head of trading at MKS in Switzerland, as quoted by Reuters. "1,400 is a big resistance, although overnight we tested 1,407, due to stops."
Traders are waiting for clear signs on whether the Fed will soon start scaling back its debt purchases from their current levels of $85 billion a month. The programme known as quantitative easing has been one of the main drivers of the gold price in recent years as it boosts gold’s appeal as safe haven, and expectations that debt purchases might be cut as early as next month led to a steep plunge in the gold price in June. The metal has recovered more than $200 since then.
Buyer sentiment improving
There have been signs of recovery in investment demand in the past couple of weeks. Hedge funds and money managers drove bullish bets in gold futures and options to their highest level since February, according to a report by the Commodity Futures Trading Commission released on Friday. In addition, the world’s biggest gold-backed ETF, the SPDR Gold Trust, recorded its biggest one-day inflow since October 8 on Friday, with its gold holdings rising 6.61 tons to 920.13 tons.
