Gold Supported By FOMC Statement, Soft Dollar, Improved Indian Demand

Gold rose in early trading on Thursday in response to plans by the Federal Reserve to continue with their monetary policy, a softer US dollar and pick-up in physical demand from India. Since monetary policy is open ended, expect monetary easing and bond purchases to last longer, which is bullish for gold.

By Allen Sykora
10/25/2012 @ 8:06AM
Forbes

Gold rose early Thursday in response to plans by the Federal Reserve to continue with its accommodative monetary policy, a softer U.S. dollar and a pick-up in physical demand from the key consuming nation of India.

As of 7:47 a.m. EDT, gold for December delivery was $16.20, or 1%, higher at $1,717.80 per ounce on the Comex division of the New York Mercantile Exchange. December silver was up 52 cents, or 1.6%, to $32.14 an ounce.

The rise comes after the Federal Open Market Committee, following Wednesday’s pit close for Comex gold, said it would maintain its accommodative monetary policy, leaving the federal funds rate at its historical low and continuing with its bond-buying programs to hold down long-term interest rates.

“That helped to renew more interest in the market,” said Robin Bhar, metals analyst with Societe Generale.

The Fed’s current stance is especially supportive since it is “open-ended,” with no calendar-date end to the bond-buying program known as quantitative easing, said Bjarne Schieldrop, chief commodity analyst with SEB Commodity Research. Policy-setters continued to allude to slow economic growth, saying the unemployment rate remains elevated.

“If that is the case, then you expect monetary easing and the purchasing of bonds to last for longer, which of course is bullish for gold in terms of providing liquidity,” Schieldrop said.

Risk appetite generally seems stronger, Bhar said. The December S&P 500 futures were up 8.50 points to 1,413.80.

Further, Bhar said, the recent pullback in gold prices has helped bring about more physical demand from India, which previously has been softer than usual for much of the year.

“The last few days, we’ve seen some solid physical demand coming out of India as they celebrate their various festivals and you’ve got the wedding season as well, where gold is given as wedding gifts,” Bhar said.

“But it (gold) obviously needs to do some more work to prevent another probe of the lows. Obviously, a lot will depend on the currencies, particularly the U.S. dollar,” Bhar said.

So far Thursday, the greenback has a softer tone, which has also contributed to gold’s strength, analysts said. The euro was up to $1.2994 from $1.2969 late Wednesday.

“The euro/dollar level is favorable for all commodities today,” Schieldrop said. “Oil is up and metals are mostly up….It’s broadly driven by money flows, currencies and sentiment.”

U.S. economic data on the calendar for Thursday include durable-goods orders, weekly initial jobless claims and the Chicago Federal Reserve’s national activity index at 8:30 a.m. EDT, followed by pending home sales at 10 a.m. Expectations are for jobless claims to fall to 370,000 to 375,000, which would be down from 388,000 the prior week, and for September durable-goods orders to bounce back by around 8% to 8.3% after a 13.2% drop in August.

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