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Gold Rises as Focus Shifts to Fed Outlook

SOURCE: [Financial Post] - Gold rose on Tuesday, brushing off the impact of a recovery in the dollar, ahead of a U.S. Federal Reserve meeting later this month and after euro zone finance ministers gave Spain another year to meet its fiscal targets.

Spot gold was up 0.4 percent on the day at $1,593.24 an ounce by 1410 GMT, having hit a session high of $1,600.90 earlier in the day. August gold futures were up 0.3 percent at $1,593.90 an ounce.

“Today’s move has taken place against a very thin volume background and has been more about a flow out of other assets into a temporary safe haven. Temporary being the appropriate word,” David Govett, head of precious metals at Marex-Spectron, said.

“At the moment, gold is drifting aimlessly and taking its cues from any number of things, reacting one way on one day and another way on another. I don’t see it breaking out of its past month range in the short term,” he added.

The Federal Reserve will hold a two-day policy meeting on July 31, which is expected to yield no change in U.S. interest rates, but markets will scour every word of the policy-setting committee’s minutes from the last meeting, which are due on Wednesday.

Three top Federal Reserve policymakers on Monday laid the groundwork for a third round of bond purchases, saying the U.S. recovery was weak and unemployment far too high.

“Gold is riveted to any nuance out of the Fed right now,” James Steel, an analyst with HSBC, said.

“ We’ve been in recovery mode since the Friday sell-off. This recovery hasn’t been supported by great physical demand. So therefore $1,600, although the market has got above it (and) is only revolving around it,” he said.

The Fed has kept benchmark short-term interest rates near zero since December 2008 and has signalled it will keep them there until at least late 2014 to bolster the economy.

Gold tends to compete more effectively for investor money when interest rates are low as it has no yield or dividend that can be eroded by loose monetary policy.

Since the Fed embarked on its first round of bond-buying in late 2008, gold has more than doubled in value.

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