Gold rose just about 1% on Thursday, following the Euro and US shares for a second day of gains, as positive market sentiment grew due to an anticipated conclusion of a Greece’s bond deal boosted financial markets generally. Gold traded up as Greece moved nearer to wrapping up its bond swap with PSI bond holders on Thursday.
But the metal came off its highs after the ECB delivered a caution on inflation. Market sentiment for gold already received a lift after a Wed. report announced US Fed Reserve members were thinking about a new kind of bond-buying program. The new program mentioned by Fed Chief Ben Bernanke is called “Sterilization”, a novel approach to bond buying aimed at containing some of the worry that another program of asset purchases by the Fed. could fuel inflation.
Citing people familiar with the matter, the Wall Street Journal reported on Wednesday that should the Fed decide to buy more bonds to boost growth, it could borrow back the money it used to buy those bonds for short periods of time at low interest rates. Doing so would take that money out of circulation, or sterilize it.
Analysts predict gold to rally further on expectancies the Fed and the ECB will continue financial policies to promote growth and expansion. Year to date, gold is up 8.5 percent.
The Taylor Rule, which signals where the Federal Reserve’s funds rate should be given prevailing inflation and unemployment, is indicating the present policy rate is too low whether this is a bearish signal for rare metals generally and gold in particular is dependent on the way the Fed reacts relative to what the Taylor Rule suggests.
Should the Federal Reserve start raising rates, it might mean a rise in real interest rates, which would be negative for investment demand.
But if the Fed keeps rates under that, as the Taylor Rule would suggest, it would be bullish for Gold and metals.
Spot gold was up 0.7 % at $US1, 696.71 an ounce by 1:05 p.m. EST (1805 GMT).
Gold is on track for its 2nd sequential weekly loss after a 2-per cent tumble on Tues. as jitters over Greece’s debt sent the metal below its 200-day moving average.
US gold futures for April delivery were up $US13.50 at $US1, 697.40 an oz.
The gold market will carefully monitor Fridays cut off point for settlement in Greece’s debt swap. Bullion traders also await Friday’s US non-farm payrolls report, which might be a driver to push gold upwards because of the reports its effects on the US dollar.
The next 24 hours will be very interesting for Gold traders.
Holdings of gold in the world’s biggest exchange-traded products held at a record 70.82 million oz. ETPs have drawn in more than half 1,000,000 oz. of gold in the last month, reflecting demand among financiers for the metal.
Silver rose by 1.1 % on the day to $33.74.