Gold prices edged higher in Europe on Thursday, but were kept in a narrow range by uncertainty over how far the Federal Reserve will satisfy market speculation that it will unveil another round of measures to stimulate the US economy.
A speech by Fed chairman Ben Bernanke at a central bankers' symposium in Jackson Hole, Wyoming, on Friday will provide clues on the chances of the Fed embarking on another asset buying programme, known as quantitative easing.
The metal has climbed more than 2 percent since minutes of the Fed's last meeting, released on August 22, suggested the bank may be set to launch a third round of QE to boost growth.
Further monetary easing would maintain pressure on long-term interest rates, boost liquidity, undermine the dollar and stoke fears over the inflation outlook further down the road. All these factors are positive for gold.
“On gold we are very much into a wait-and-see approach,” Saxo Bank analyst Ole Hansen said. “(There was) a bit of profit taking yesterday, but considering the move higher last week it is holding up very well, with investors reluctant to let go.”
“As long we can hold $1,630 support on any pull-back, the technical outlook looks pretty good,” he added.
“We think the most likely outcome tomorrow will be an extension of the very low interest rates until 2015.” While this could initially disappoint, he said, the reiteration of a low interest rate policy will be supportive overall.
Spot gold was up 0.1 percent at $1,656.99 an ounce at 11:52 SA time, while US gold futures for December delivery were down $3.00 an ounce at $1,660.
Uncertainty over central bank action sent world shares and industrial commodity prices lower on Thursday, while nervousness ahead of the meeting of central bankers in the United States also curbed risk appetite.
Lending short-term support to gold, the euro edged higher against the dollar as investors awaited the outcome of the Jackson Hole meeting.
Any sign of more QE on Friday would hurt the dollar and give an extra lift to the euro, which has been buoyed by expectations the European Central Bank will unveil concrete plans next week to help bring down crippling borrowing costs in Spain and Italy.
GOLD ETF INFLOWS RISE
Inflows into gold exchange-traded funds have risen sharply this month, with holdings of the largest, New York's SPDR Gold Trust up nearly 38 tonnes so far this month, their largest monthly inflow since November.
The precious metal rallied to a 4-1/2 month high on Monday as expectations grew that the Fed was willing to launch more stimulus measures, but it has failed to sustain those gains.
From a chart viewpoint, technical analysts at ScotiaMocatta, who study past price patterns for clues as to the future direction of trade, say gold's position is weakening slightly. “We are currently neutral,” they said.
Barclays Capital technical analysts said they too were neutral in the medium term. “We would buy gold dips toward $1,640, and stay bullish above $1,620,” it said. “Above $1,700 signals further upside potential toward $1,768/88.”
Among other precious metals, spot silver was up 0.1 percent at $30.70 an ounce.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, dropped to its lowest early May at 53.9, as silver made up some lost ground against gold. In a weekly note, precious metals house Heraeus said that made it vulnerable to a correction if Bernanke disappoints.
“Due to the higher silver prices in particular - in which QE3 actions have already been accounted for - we see an increased downward potential,” it said.
Spot platinum was up 0.9 percent at $1,523.49 an ounce, while spot palladium was up 0.3 percent at $629.70 an ounce.
Platinum producer Lonmin said less than 7 percent of its 28,000-strong South African workforce had reported for duty on Thursday as talks were slated to calm warring unions and bring people back to work.
The world's third-largest producer of the metal has had its mining operations shut for almost three weeks, as a wave of violence stemming from a union turf war killed 44 people. - Reuters