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Gold hovers around $1,620/oz

Jul 30 2012 10:46 Reuters

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Singapore - Gold held steady above $1,620 per ounce on Monday, as investors wait for the central banks on both sides of the Atlantic to give clearer cues on the potential for further monetary stimulus.

Last Friday's data showed US economic growth slowed in the second quarter as consumers spent at their slowest pace in a year, increasing pressure on the Federal Reserve to do more to bolster the recovery ahead of the Fed policy meeting later in the week.

Ambiguity on another round of quantitative easing, known as QE3, has held gold in a seesawing pattern over the past two months. More monetary easing would raise inflation outlook and benefit gold, seen as a hedge against rising prices.

But some analysts expect the Fed to stick to the line that the economy has not deteriorated sufficiently for the central bank to intervene.

"I don't see the Fed drastically changing its rhetoric on QE3 at this week's meeting," said Li Ning, an analyst at Shanghai CIFCO Futures. "Technically, gold is poised for some correction after last week's rally, as there is still quite a bit of pressure at the $1,640 level."

Spot gold had edged down 0.1% to $1,620.91 per ounce by 02:48 GMT, after posting a 2.5% weekly gain on Friday, its biggest one-week rise in nearly two months. It hit $1,629.10 in the previous session, the highest since early June.

The US gold futures contract for August delivery inched up 0.1% to $1,620.30.

Gold has drifted between $1,530 and $1,640 over the past two months.

Technical analysis suggested that spot gold was due to correct to $1,608 per ounce during the day, said Reuters market analyst Wang Tao.

The higher prices triggered some selling in the physical market in Asia, dealers said.

"We've seen scrap come out from Indonesia and Thailand as prices moved up," said a Singapore-based dealer, adding that the gold bar premium was steady around 80c per ounce above London prices.

Investors will also closely watch the policy meeting of the European Central Bank on Thursday, after the bank's chief Mario Draghi's pledge last week to do everything necessary to protect the euro zone fuelled expectations for more accommodative policy moves.

ETF holdings decline

In contrast to the buoyant sentiment in the gold market in recent sessions, investor interest in exchange-traded gold products was on the decline.

Holdings of SPDR, the world's biggest gold-backed exchange-traded fund, have been falling for a month and dropped to 1,248.606 tonnes on Friday, the lowest level since early November.

Hedge funds and money managers trimmed their net long positions in US gold futures and options by about 25% in the week ended 24 July, data from the US Commodity Futures Trading Commission showed.

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