Gold Trades Sideways as Market Awaits Fed Strategy

on Jul 16, 2012
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Gold prices were near steady amid muted trading on Monday (July 16) as investors stayed on the sidelines ahead of clues from Ben Bernanke, the US Federal Reserve chief, in his impending semi-annual testimony in front of Congress. Spot gold was little changed at $1,583.99 an ounce, after losing about half a per cent over the previous session. US gold futures contracts for August delivery edged down 0.3 per cent to $1,584.50. In early trade the correlation between the dollar and gold stood at -0.68, where a reading of -1 suggests a perfect inverse correlation in which one asset rises and the other drops. Monday’s dollar/gold correlation was steady from Friday and the strongest inverse correlation in nearly three months.

Meanwhile the Commerce Department reported US retail sales dropped by a seasonally adjusted 0.5 per cent in June, far worse than market predictions for a 0.2 per cent gain. The softer-than-expected numbers came in the wake of a 0.2 per cent decline in May and marked the first time retail sales had dropped in three consecutive months since late 2008. Core retail sales, which are stripped of automobile sales, contracted for the second consecutive month, dropping 0.4 per cent, defying market expectations for a gain of 0.1 per cent, after falling by 0.4 per cent in May. The numbers also came in wake of a weak June jobs report and poor consumer sentiment figures, increasing expectations the Federal Reserve will launch third round of quantitative easing (QE3), which would affect the gold market.

!m[](/uploads/story/170/thumbs/pic1_inline.png)”Macro developments and policy expectations are likely to continue driving the gold market for the remainder of 2012, and so it’s more of the same for gold as we have seen in recent months,” UBS investment bank said in a note.
Bernanke’s impending two-day semi-annual testimony to the US Congress on Tuesday will be scoured for clues on the central bank’s attitude to another round of quantitative easing. Gold has been sensitive to the Fed’s stance on monetary stimulus this year and particularly to the impact of such a move on the dollar because a move by the Fed to launch a third round of quantitative easing would weigh on the dollar and support the yellow metals’ appeal as an inflation hedge.

“Gold has been pulled and pushed on the back of expectations of further quantitative easing and remains under pressure from the strong US dollar,” said Barclays Capital analysts in a research note. “Over the coming weeks, the resilience of ETP (exchange-traded products) holdings, coupled with the physical market ahead of the seasonally strong period for demand in India, will be key in determining the solidity of the price floor for gold.”
Among other precious metals, on Monday silver was down 1.3 per cent at $26.96 an ounce. Spot platinum was down 0.8 per cent at $1,410.25 an ounce and spot palladium was down 0.6 per cent at $575.58 an ounce.

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