LONDON: Gold slid below $1,340 an ounce in its most volatile trading day in two months on Thursday, having earlier hit a record high on investor expectations for the Federal Reserve to support flagging US growth.
Spot gold was last at $1,337.75 an ounce at 1451 GMT, up from $1,345.80 late on Wednesday, but down from an all-time peak of $1,364.60 struck earlier in the day as a rebound in the dollar against the euro dented gold.
The Fed is still widely expected to resume quantitative easing — in which the central bank would buy government bonds for example and pump extra cash into the financial system to keep interest rates low — which has pushed the dollar down 7 per cent against a basket of currencies in the last month.
Gold, which usually benefits from dollar weakness due to its inverse relation with the US currency, has gained nearly 10 per cent in the same period.
The price has risen by 2.3 per cent this week, set for its fourth week of gains, and on Thursday witnessed its most volatile day of trade since mid-August, according to Reuters data.
US gold futures for December delivery hit a fresh record high at $1,366 an ounce, before easing to $1,350.40, up $2.4 an ounce on the day.
Market watchers have expected gold to succumb to some profit-taking before scaling new heights as uncertainty over the global economic outlook prevails.
“The whole world uncertainty, the Western slowdown, the Eastern slowing groth, the currency turmoil, the inflation/deflation debate, it all seems supportive for gold,”
said Credit Agricole analyst Robin Bhar.
Gold has gained more in dollars so far this month than in other currencies. In euros gold is up just 0.6 per cent this month, compared to a 2.8 per cent gain in dollar-priced gold, while yen-priced and sterling-priced gold are both up 1.3 per cent.
“We look at the reasons for holding gold and other precious metals and, above everything else, it is the idea of a store of value to protect against currency debasement,” said Natixis strategist Nic Brown. “Whether you’re undergoing quantitative easing or whether you’re devaluing your currency against others, it all adds up to pretty much the same thing.”
Both the Bank of England and the European Central Bank left their benchmark rates unchanged, as expected. The ECB signalled it was happy with the signs of normalisation in the money markets and said economic recovery in the euro zone would continue.
Gold retreated from earlier highs after the world’s third-largest producer of the metal, Anglogold Ashanti said it had completed the buy-back of its hedgebook, previously the largest in the industry.
But on a supportive note for gold, state media in Vietnam reported that Asia’s second largest bullion consumer after India would grant licences and quotas to import gold, which was banned in mid-2008 as policymakers attempted to tackle the country’s trade deficit.
Nervousness over the outlook for US growth was heightened on Wednesday after a survey of private-sector employment showed a surprise contraction in September, which further unsettled investors ahead of Friday’s key employment report.
“With expectations for quantitative easing high, data monitoring between now and the Nov. 3 (Fed policy setting) meeting becomes even more significant,” wrote UBS analyst Edel Tully in a note.
“The short-term direction of the US dollar, and therefore gold, will be influenced by tomorrow’s US payrolls data: a positive or negative deviation from expectations will weigh heavily on market thinking about quantitative easing prospects.”
Spot silver hit a new 30-year high at $23.51 an ounce, but later eased to $23.02, down from $23.13 on Wednesday.
Holdings in the iShares Silver Trust, the world’s largest silver-backed, exchange-traded fund, rose to a fresh record high of 9,944.14 tonnes.
The platinum group metals retained gains. Spot platinum rose to $1,723, its highest since mid-May and was last up 0.5 per cent on the day at $1,702.50, while palladium hit a new
nine-year peak at $602.50 and was last up nearly 3 per cent at $592.00. – Reuters