FOMC meet: Gold edges up in countdown to Fed policy decision

Gold held steady above $1,800 an ounce on Wednesday ahead of the outcome of a Federal Reserve policy meeting at which the US central bankis expected to unveil its next steps to revive the world’s largest economy.

The Federal Open Market Committee (FOMC) is widely expected to signal that it will rebalance its portfolio of Treasury holdings in favour of longer-dated debt, which should help it anchor longer-dated interest rates, rather than embark on a another multi-billion round of government bond buying, or quantitative easing.

Gold has been a major beneficiary of the Fed’s QE programmes, having gained more than 40 per cent since the central bank’s most recent round of bond-buying, which ran from November 2010 to June this year.

While few in the market expect QE3, any measures that keep US rates low in the face of a struggling economy should support gold in the longer-run.

Spot gold was last up 0.4 per cent on the day at $1,810.79 an ounce by 0935 GMT, having nearly eased the week-to-date decline that was apparent the day before.

So far this month, gold is down by 0.7 per cent and set for its first monthly fall since June, but on a quarterly basis, it is set for its strongest gain since 1986 as consumers and investors alike remain undeterred by near-record highs.

“I was among the ones who thought a nice correction down to $1,700 would be very good for the market. But it looks like every time we got close to $1,760, the size of the physical demand was large enough to take the gold higher,” said MKS Finance head of trading Afshin Nabavi.

“We will have to wait until the FOMC. I don’t think there will be any possibility of QE3, but probably they will mention the bonds (rebalancing) and already the dollar is benefiting from it this morning.”

Ordinarily, a pick-up in the dollar would act as a headwind to gold, but this inverse correlation has eroded this month and the two assets have been positively correlated for 11 straight trading days, the longest such stretch in seven months.

In the latest sign that US growth has stalled, new construction of US homes fell more than expected in August, keeping pressure on President Barack Obama to do more to help the economy. – Reuters

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