By Amanda Cooper
LONDON - Gold steadied around its highest level in nearly six months on Tuesday, boosted by the prospect of further liquidity injections from the US Federal Reserve, which kept the dollar under pressure.
Fed Chairman Ben Bernanke in a speech last week suggested the central bank may resort to using more unusual policy measure to keep interest rates low, which has lifted growth-dependent assets such as commodities and stocks.
Investors hold more gold through exchange-traded funds than at any time in the past, after hefty inflows of metal into these products in August.
The likelihood of the European Central Bank unveiling a plan on Thursday to definitively reverse the debt crisis that has plunged the euro zone into recession gave the single European currency a boost, driving gold priced in euros to its highest level this year.
Analysts said the scope for disappointment from either the ECB or the Fed would likely limit gains in gold for now.
Spot gold was up 0.1 percent at $1,693.30 an ounce by 0805 GMT.
“For a sustained rally past $1,700, you do need to see definite action from the ECB and a substantially lower dollar,” Andrey Kryuchenkov, an analyst at VTB Capital said.
“The fact that the other precious metals are rallying as well and it's not just gold, shows it is macro sentiment that is driving the market at the moment ... All that promise needs to turn into concrete action. And for gold in the long run, it needs any sort of liquidity boost, of balance sheet expansion and for (bond) yields to stay low.”
In theory, gold benefits from low borrowing rates as these cut the so-called opportunity cost, or the premium investors forfeit by owning gold rather than a yield- or dividend-bearing asset, of investing in this market.
So far in 2012, gold has gained more than 8 percent, putting it on track for its twelfth successive yearly rise, but has yet to challenge the high for this year at $1,790.30 an ounce. - Reuters