Tags: Gold | Fed | Dollar

Gold Rises as Fed Easing Report Pummels Dollar

Wednesday, 20 Oct 2010 03:57 PM

Gold turned higher Wednesday as the dollar fell after an influential consultancy said the Federal Reserve planned to buy $500 billion of U.S. Treasuries over six months to spur the economy.

The metal lost 2.5 percent on Tuesday, its biggest one-day drop since July, after China unexpectedly raised interest rates. China's move sent the dollar index, a gauge of the greenback's strength against a basket of six currencies, up nearly 2 percent.

On Wednesday, bullion gained less than 1 percent, even as the dollar index slid 1.3 percent and appeared on track for its biggest one-day decline in nearly four months.

Gold rose less than the dollar declined partly because the gold market has been heavily overbought following a near 20 percent rally since mid-July, traders said.

"We're seeing a pretty big move in the dollar to the downside and we're not seeing that reflected as much in the gold market to the upside," Jeff Pritchard, an analyst at Altavest Worldwide Trading, said.

"The market may have gotten ahead of itself and that correction yesterday put things back in perspective a little bit. I definitely don't think the uptrend is over, but it might be a little less fierce upside than we've seen recently."

Spot gold rose 0.6 percent to $1,343.85 an ounce by 1:20 p.m. EDT (1720 GMT). U.S. gold futures for December delivery climbed $8.40 an ounce to $1,344.40.

While fresh weakness in the U.S. currency helped prices to rise back above $1,340 an ounce, the metal's move has been relatively muted after Tuesday's hefty losses.

Gold, which is denominated in dollars, tends to move in the opposite direction to the U.S. currency. The 100-day correlation between bullion and the dollar, however, was a negative 0.16, Reuters data showed, suggesting their long-term inverse relationship was weak.

Dollar losses accelerated after a report from consultancy Medley Global Advisors said the Fed planned to launch a program to buy $500 billion of U.S. Treasuries over six months and leave itself room for more purchases.

The U.S. central bank has said it is prepared to put more money into the economy if needed to stimulate recovery and avoid deflation in a process dubbed quantitative easing.

Tom Pawlicki, precious metals and energy analyst at futures broker MF Global, said gold should benefit from further monetary easing.

"It still looks very inflationary, and the higher price of oil today is another inflation indication," he said.

Pawlicki said the fact that gold Tuesday held above key chart support at the bottom of its three-month rising channel near $1,320 prompted technical buyers to enter the market.

PHYSICAL SUPPORT

Gold is likely to be supported in the near term by the forthcoming Fed meeting and the Indian festival of Diwali, a major gold-buying event that traditionally brings strong demand for the metal, Standard Bank analyst Walter de Wet said.

Gold's dip from highs has drawn physical buying in price-sensitive bullion markets such as India, the world's biggest consumer of the metal, analysts said.

"The physical community were initially quite hesitant to buy as gold was abseiling south (on Tuesday), but today we have seen quite decent physical demand," UBS analyst Edel Tully said.

"There is quite a lot of pent-up demand out there."

She said physical gold buyers seem to have adjusted the price at which they are comfortable buying, after purchases in India in particular sank in 2009 as prices raced to highs.

Silver rose 2.1 percent to $23.82 an ounce, having also slipped by the most since July 1 on Tuesday with a 4 percent decline. It is still one of the biggest climbers among precious metals so far this year, up 41 percent.

Platinum traded up 0.9 percent at $1,681.99 an ounce, while palladium rose 2.5 percent to $587.45.

© 2017 Thomson/Reuters. All rights reserved.

 
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Gold turned higher Wednesday as the dollar fell after an influential consultancy said the Federal Reserve planned to buy $500 billion of U.S. Treasuries over six months to spur the economy. The metal lost 2.5 percent on Tuesday, its biggest one-day drop since July, after...
Gold,Fed,Dollar
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2010-57-20
Wednesday, 20 Oct 2010 03:57 PM
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