Gold holds ground ahead of Fed decision on stimulus

Gold edged higher on Wednesday after the previous day’s slide, ahead of a key US Federal Reserve decision on when to begin rolling back its massive monetary stimulus. The Fed will issue a statement at the end of its two-day policy meeting on Wednesday at 1900 GMT, the last one in a year in which financial markets have been extremely sensitive to any comments on the outlook for the stimulus. The $85 billion in monthly bond purchases have been a major supporter of global commodities such as gold.
Most economists polled by Reuters last week expected the tapering to begin only in March, but some say there is still a chance of a stimulus cut immediately. “A small-scale reduction may cause gold to fall to a range $30-$60 lower than its current range but knee-jerk reaction the likes of April and June is less likely,” said Joyce Liu, an investment analyst at Phillip Futures Pte Ltd.
The markets are well-prepared for a small reduction in stimulus given the Fed’s earlier comments, Liu said. “The market is unlikely to head straight into another selling frenzy on fears of rising interest rates, but is still likely to pull funds out of speculative and leveraged instruments,” she said.
Spot gold edged up 0.3 per cent to $1,233.30 an ounce by 0734 GMT, after dropping 0.8 per cent in the previous session. The metal has lost about 26 per cent of its value this year on growing concerns that an improving US economy could prompt the Fed to scale back its bond purchases.
Fed Chairman Ben Bernanke had said in June the bank will begin slowing the pace of bond purchases later this year and would likely end the program by mid-2014. However, he later said the Fed needs to see more evidence of economic growth for the tapering to begin, causing uncertainty in markets.
Data showed that investors continued to dump bullion for other assets. SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 2.08 tonnes to 816.82 tonnes on Tuesday – to fresh lows since January 2009. On the physical side, China – the world’s biggest bullion consumer – saw trading volumes for 99.99 per cent purity gold pick up on Wednesday to about 13 tonnes from Tuesday’s 8 tonnes.
Source:Bullion Bulletin

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