Gold hovers near two-week high on hopes of easing

MARKETS-GOLD:Gold hovers near two-week high on hopes of easing

singapore  July 4, 2012, 12:31 IST

singapore  07 04, 2012, 12:40 IST

 

Gold hovered near a two-week high on Wednesday, helped by hopes central banks will ease monetary policy in a bid to nurture a fragile recovery in the global economy.

The European Central Bank is expected to cut interest rates on Thursday in the wake of a string of weak economic data, a move that would likely support gold as it typically benefits from a low interest rate environment.

"Investors are pinning their hopes on an ECB rate cut and the rising possibility that quantitative easing may be back on the cards for the Fed," said Chen Li, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

Gold will be further underpinned if hopes for another round of easing by the U.S. Federal Reserve are enhanced by any disappointment over U.S. non-farm payrolls data on Friday, she added.

Spot gold was little changed at $1,616.79 an ounce by 0646 GMT, after rising more than 4 percent since last Friday. It hit a two-week high of $1,624.70 in the previous session.

The U.S. gold futures contract for August delivery edged down 0.3 percent to $1,617.40.

Still, some analysts were less confident about the impact another round of quantitative easing would have on the global economy.

"We worry that looser money will not have the desired effect, as its impact gets diluted each time it is used, particularly when rates are close to zero to begin with," Ed Meir, an analyst at INTL FCStone, wrote in a research note.

Nonetheless, investors are likely to bid the markets higher over the short term if the Fed once again takes such a step, he added.

The physical bullion market in Asia was less buoyant, with major consumers India on the sidelines for the monsoon season and China in a summer consumption lull, dealers said.

Spot platinum rose to a two-week high of $1,485.75 an ounce. Spot palladium gained 1.2 percent to $601.24, extending a rally near nearly 4 percent in the previous session after data showed unexpectedly strong U.S. auto sales in June.

Platinum group metals, including platinum, palladium rhodium, are widely used to produce emission-reducing autocatalysts.

North America consumed nearly a quarter of the palladium and 12 percent of the platinum used globally to produce autocatalysts in 2011, according to refiner Johnson Matthey.

(Editing by Daniel Magnowski)