Gold Rises Above $1,130 Ahead of Fed

Published: Wednesday, 16 Dec 2009 | 4:55 AM ET

Text Size

Gold rose above $1,130 an ounce on Wednesday after above-consensus euro zone data lifted the euro from lows, but prices were rangebound amid caution ahead of a Federal Reserve monetary policy statement due later.

AP

Traders were also closely eyeing U.S. November consumer price inflation data at 8:30 am New York time, after a higher-than-expected reading of the producer price index on Tuesday sparked a price rebound.

Spot gold [US@GC.1 1134.0 11.60 (+1.03%) ] was bid around $1,131 an ounce, against $1,124.40 late in New York on Tuesday.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange rose $8.80 to $1,131.80 an ounce.

Gold has managed to hold above $1,120 an ounce this session as caution before the data helped it shrug off dollar strength.

"We have a mixture of psychological (support) and data coming out in the United States and the euro zone," said Wolfgang Wrzesniok-Rossbach, head of sales at precious metals house Heraeus.

"From a technical point of view there is strong support only at $1,095 and I wouldn't be surprised if the metal at some stage actually tests that," he added. "But on the other hand, it seems every time it comes below $1,120, we find speculative buying."

Speculative investors are attracted to what they perceive to be the metal's good value after a $100 price retreat from record levels over the last two weeks, traders said.

A slight recovery in the euro after euro zone services PMI data is also helping the metal. Markit's Eurozone Flash Service Purchasing Managers Index rose more than expected to 53.7 in December, its highest since November 2007.

A softer dollar versus the euro boosts gold's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies. But the U.S. currency stayed near a 2-1/2-month high as investors awaited the Fed policy statement for clues on when it may begin winding down its loose monetary policy.

Data Awaited

Traders are awaiting the release of the U.S. consumer price index and other data included November housing starts at 8:30 am New York time, as well as the key Fed interest rate decision and monetary policy announcement at 2:15 pm.

"The market will be looking out for any indications of an earlier liquidity withdrawal or interest rate rises given recent bullish U.S. data," VTB Capital analyst Andrey Kryuchenkov said in a note. "Perhaps it is too early to turn completely bullish on the greenback, but sentiment is certainly improving."

Among other commodities, oil prices rose above $71 a barrel after snapping a nine-day losing streak a day earlier. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

On the physical side of the market, India's gold demand turned weak on Wednesday afternoon as traders sought lower prices, after the offtake picked up slightly late in the previous session, dealers said.

Holdings of the SPDR Gold Trust [GLD 110.21 -0.03 (-0.03%) ] , the world's largest gold-backed exchange-traded fund, were unchanged on Tuesday from the previous session, it said.

Among other precious metals, silver was at $17.43 an ounce versus $17.41, platinum was at $1,442.40 an ounce against $1,445.50 and palladium at $365 against $363.80.