Gold eases as US monetary stimulus hopes fade

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By Jan Harvey

LONDON - Gold prices eased in Europe on Wednesday, extending the previous session's losses, after Tuesday's stronger-than-expected US retail sales data dampened speculation for another round of monetary easing from the Federal Reserve.

Hopes that the European Central Bank could launch extraordinary measures to tackle the euro zone debt crisis and support its ailing economy kept the metal firmly underpinned near $1,600 an ounce, however.

Spot gold was down 0.1 percent at $1,596.00 an ounce at 0928 GMT. The precious metal has fallen 1.4 percent this week and is little better than flat on the year, as investors stay on the sidelines awaiting clearer signals on monetary policy.

“Repeated flashes of better-than-expected economic data from the United States are surely quashing the immediate possibility of QE,” Richcomm Global Services analyst Pradeep Unni said.

However, he added, “likely stimulus packages from Europe and the UK are supporting gold”.

“Any accelerated rally is unlikely to sustain, and gains beyond 1630 seems to be a near impossibility unless QE is announced from either the EU or the US. Gold is supported at 1585-1590,” he said.

Further monetary easing - printing money to buy bonds - would boost liquidity while maintaining pressure on long-term interest rates and fuelling fears inflation could rise in the longer run. All these factors support gold.

Financial markets will be closely watching US data due later, including consumer inflation numbers, real earnings and the New York Fed Empire State manufacturing index, for clues as to the likelihood of another round of stimulus measures.

Global growth concerns hit shares in Europe and Asia on Wednesday, while expectations of central bank action to stabilise the euro zone debt crisis propped up the euro and tempered demand for German bonds.

The single currency held steady against the dollar, with investors wary of selling it aggressively due to the prospect of ECB restarting bond buying to curb high Spanish and Italian borrowing costs.

“The euro zone appears to continue to struggle, while the US keeps surprising the market with positive figures,” London's Marex Spectron said in its morning note. “This only enhances the chance that the European Central bank is more likely to act before the Fed.” - Reuters


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