Gold price firms ahead of Fed despite stronger dollar

Few reasons to smile

Gold held firm at five-week highs above $1,350 an ounce on Wednesday, ahead of a US Federal Reserve decision on monetary policy.

In midday trade on the Comex market in New York December gold futures changed hands at $1,355 up $10 or 0.7% from yesterday’s close, off highs near $1,360 an ounce in early morning trade.

Gold investors are looking for signs from chairman Ben Bernanke about when the Fed will start tapering off its quantitative easing program.

The Federal Open Market Committee, to give the body its official title, surprised markets in September when against expectations it held off on dialling back the QE program which pumps $85 billion of easy money into financial market each month.

Expectations vary widely on when the Fed will throttle its asset buying program which is set to top $4 trillion by the end of the year, but few expect it to be this year and some economists only see cutbacks in Spring of next year.

The anemic nature of the US economic recovery bolsters the case for keeping the spigot open with more evidence on Wednesday – private sector hiring coming in under expectations – that more Fed stimulus is needed.

QE burnishes gold’s status as a preserver of wealth compared to paper assets, but despite the Fed’s actions, gold has declined more than 19% this year following unprecedented outflows from gold-backed exchange traded funds.

But the metal’s recent strength – gold is up 6% from 3-month lows hit October 15 – is remarkable for the fact that it has come in the face of a stronger dollar.

Even with the dramatic sell-off on precious metals markets this year, an ounce of gold is still worth 50% more than before QE.

The first QE program kicked off in early December 2008 when an ounce of gold cost $837.50.

Must read new report by the World Gold Council illustrates the relationship between gold and the world’s currencies and the impact of worldwide monetary stimulus on purchasing power:

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