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Gold Prices Firm Ahead of Fed Meeting Start

Monday, 01 Nov 2010 11:37 AM

Gold prices firmed in Europe on Monday, building on three consecutive months of gains as expectations the Federal Reserve will unveil further U.S. monetary easing at a meeting on November 2-3 pressured the dollar.

Spot gold was bid at $1,358.40 an ounce at 1252 GMT, against $1,357.05 late in New York on Friday. U.S. gold futures for December delivery rose $1.20 an ounce to $1,358.80.

Gold is benefiting from weakness in the dollar, which boosts the metal's appeal as an alternative asset and makes dollar-priced commodities more expensive for other currency holders.

"The dollar continues to be under pressure," said Afshin Nabavi, head of trading at MKS Finance.

"This week is going to be a big week as far as news is concerned. We have got the mid-term elections tomorrow, we have got the FOMC on Wednesday and non-farm payrolls on Friday, so I think probably the market is positioning ahead of that."

The dollar fell against a basket of currencies .DXY as the market geared up for the Fed to step up money printing after its meeting starting on Tuesday, with uncertainty surrounding the scope and pace of potential bond purchases by the bank. <FRX/>

Market expectations have centered on an initial commitment to buy at least $500 billion in Treasury debt over five months in an effort to spur lending and support an economic recovery that is too weak to tame high unemployment.

A larger-than-expected round of quantitative easing could further undermine the dollar, boosting gold, but if the measures are softer than expected, the dollar is expected to revive and gold to ease.

"While the decision on further monetary easing has the potential to disappoint, given the strong market performance over the past several weeks, we think the longer-term threat of uncertainty and inflation could limit price declines (in precious metals)," said Morgan Stanley in a note.

INDIAN DEMAND FIRM
Reports indicated gold buying in major bullion consumer India had been firm in recent months. The president of the Bombay Bullion Association said India's October gold imports rose to 43 tons, above a Reuters poll forecast of 41.5 tons.

"The Diwali religious festival takes place in India on Friday, and physical demand for gold should remain high in the run-up to this holiday," said Commerzbank in a note.

On the supply side, top 10 gold producer Harmony Gold (HARJ.J: Quote, Profile, Research, Stock Buzz) cut its guidance for full-year output to around 1.64 million ounces from 1.7 million ounces.

Silver prices rose to their highest in 30 years, tracking gains in gold to break through $25 an ounce for the first time since 1980, peaking at $25.03 an ounce. The metal was later bid at $24.82 an ounce against $24.64.
Holdings of the world's largest silver-backed exchange-traded fund, the iShares Silver Trust, fell nearly 40 tons on Friday, data from the fund showed, to 10,141.92 tons.

Palladium extended the previous month's 15 percent gains to hit a near 9-1/2 year high at $655 an ounce and was later at $644.50 an ounce against $643.

The metal is one of this year's best performers among commodities, up more than 60 percent in 2010 to date, boosted by expectations supply will fail to keep up with burgeoning demand for the autocatalyst metal.

"A slowdown in palladium supply from potentially exhausted Russian state stocks creates a more constructive fundamental base longer term," said Barclays Capital in a note.

Among other precious metals, platinum was at $1,714.24 an ounce against $1,698.50.

© 2017 Thomson/Reuters. All rights reserved.

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Gold prices firmed in Europe on Monday, building on three consecutive months of gains as expectations the Federal Reserve will unveil further U.S. monetary easing at a meeting on November 2-3 pressured the dollar. Spot gold was bid at $1,358.40 an ounce at 1252 GMT,...
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