Despite profit taking in the yellow metal by investors, gold might bounce back due to Fed’s actions.
The dollar rebounded against the euro after earlier trading near a two-month low. Gold is set for a 2.6 percent increase this week after the Federal Reserve said it will buy bonds to revive the economy, while holdings in the biggest exchange-traded fund advanced to a record.
“The euro has dropped down a bit against the dollar,” Narayan Gopalakrishnan, a Geneva-based trader at MKS Finance, one of Switzerland’s four bullion refiners, said. “There’s also a little bit of profit-taking” following two days of gains, though “the dollar will remain under pressure for the next week,” he said.
Gold for immediate delivery fell as much as $8.97, or 0.9 percent, to $950.88 an ounce, and traded at $954.16. The metal earlier gained as much as 0.8 percent. April futures lost 0.5 percent to $953.90 an ounce in electronic trading on the New York Mercantile Exchange’s Comex division. The metal rose to $957 in the morning “fixing” in London, used by some mining companies to sell production, from $956.50 at yesterday’s afternoon fixing. Spot prices, which briefly rose above $1,000 a month ago, are 7.6 percent below the record $1,032.70 reached a year ago. Gold is up 8.2 percent this year.
Bullion rebounded this week after the Fed on March 18 pledged to buy as much as $1.15 trillion of Treasuries and mortgage debt. That may devalue the U.S. currency and boost gold prices, some analysts said.
Central bank action
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“Given the actions of the Fed and other central banks, the dollar and various other currencies have lost their appeal as safe havens, potentially triggering further investment flows toward gold,” James Moore, an analyst at TheBullionDesk.com in London, wrote today in a note.
For most of this year, gold and the dollar have abandoned their traditional inverse relationship as investors bought both to hedge against turmoil in financial markets. Some analysts expect the correlation to resume following the Fed’s announcement.
“It is not a question of if, but when, the yellow metal will retest $1,000,” Emanuel Georgouras, a precious-metals trader at Marex Financial in London. “If the European Central Bank joins the Fed with quantitative easing, gold as an inflation hedge against collaborative money printing will be ready to test new highs.”
Protecting wealth
Holdings in exchange-traded funds have climbed to records this year as investors are buying gold to protect their wealth. Assets in the SPDR Gold Trust, the biggest ETF backed by bullion, expanded 1.7 percent to a record 1,103.29 metric tons yesterday, according to figures on the company’s Web site.
“Despite these bullish developments, we maintain that gold has to overcome the heavy supply of scrap and sharp decline in jewellery demand,” said Walter de Wet, a London-based analyst at Standard Bank. “For this to happen, investment demand must continue to grow.”
Jewellery demand in industrialised nations may drop as much as 100 tons this year, from about 600 tons in 2008, according to London-based researcher GFMS.
Higher prices and a deteriorating economy have spurred scrap sales and reduced imports. Turkey is now a “major” exporter of gold, GFMS said, while imports by India, the world’s biggest buyer, have been near zero this month, the Bombay Bullion Association said.
Among other metals for immediate delivery in London, silver declined 0.3 percent to $13.545 an ounce. Platinum lost 0.8 percent to $1,117.75 an ounce, and palladium fell 0.7 percent to $204.50 an ounce.
The author is a Bloomberg News columnist. The opinions expressed are his own