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Gold Futures Trading Near One-Week High on Stimulus Speculation

December 12, 2012 - In early trade on Wednesday, gold gained to the highest levels in almost a week in New York on speculation the Federal Reserve will announce asset purchases at the press conference concluding the Federal Open Markets Committee’s last meeting of the year.

The dollar has fallen against the euro in anticipation of the conference, a signal that markets generally are betting on some form of stimulus. The Operation Twist program of bond-buying is set to expire and the FOMC may decide to extend the program or initiate a new program that will continue the purchase of longer term bonds in order to keep near-term interest rates low.

Amid the market action there is widespread expectation that the fiscal stimulus will see increases in precious metal prices. The stimulus programs of the Federal Reserve have been bullish for raw commodities, including gold and silver bullion.

Edel Tully, analyst with UBS in London, wrote today in a report that the most important precondition for gold gains is loose monetary policy. He continued that UBS doesn’t think gold has priced in a sizable expansion of the Fed’s balance sheet beyond current levels, but they do think that quantitative easing will again loom large for the first half of 2013.

U.S. gold futures for February delivery gained 0.4 percent to $1,716.70 per troy ounce in very early trade in New York. The price of gold reached $1,718.80 on December 10, the highest prices since December 4. The spot price of gold gained $7.50 per troy ounce to $1,717.10.

Data compiled by Bloomberg shows holdings in gold-backed exchange-traded products dropped 1.9 metric tons yesterday from the record to 2,627.4 tons. Gold prices are in line for a twelfth consecutive annual gain as central banks from the U.S. to China continue to pledge more measures to stimulate economic growth.

David Govett, head of precious metals at Marex Spectron, said if the Fed comes out and says it is going to put $45 billion into long term Treasuries on the face of it that is good for gold. He also believes that if no bond-buying is announced gold is vulnerable to the downside.

UBS continues that for the bank the most important precondition for gold gains is loose monetary policy, adding this overrides many other potential gold drivers.

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Jonathan Monroe

Senior Staff Writer - Gold-Bullion.org

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