Gold extends its rally towards a record high on June 22

Bullion, which broke above its recent range after rising in six of the past seven sessions, held onto early gains after the Fed reaffirmed that it would maintain interest rates exceptionally low for an extended period.

It was also underpinned by a rebound in Brent crude oil and a warning from Bank of England policymakers about a possible need for a second round of quantitative easing (QE), which drove gold in sterling to a record.

“It’s a reminder that central banks can do more. I think with the Fed, some gold investors see a bigger chance of QE3 than maybe the wider market, so perhaps it’s the gold investors you have to be looking for rather than the wider market,” said Mitsubishi analyst Matthew Turner.

The Fed, however, showed no inclination toward a third round of stimulus as it concluded a regular policy meeting, reiterating its stance that the pace of US economic recovery was proceeding more slowly than it had expected though it was primarily because of temporary factors.

Spot gold was last up 0.5 per cent at $US1,553.80 by 1236pm New York time (1636 GMT), after rising to $US1,557.75, the highest since May 2, when bullion struck a lifetime high of $US1,575.79.

The metal is up about three per cent since June 13, partly driven by investor fears over European sovereign debt.

US August gold futures were up $US8.10 at $US1,554.50 an ounce.

Silver was also up 0.7 per cent at $US36.55 an ounce.

On the gold options front, strong interest in bullish option strategies indicated investors are expecting prices in underlying gold futures to rise.

COMEX gold options floor trader Dominick Cognata said there have been decent buying in calls and call spreads, with the heaviestvolume in out-of-the-money December and August call options with the $US1,600 strike.

Gold in Australian dollars rose by as much as half a per cent to a session peak of $A1,467.54 an ounce, its highest since early July last year, while gold in euros was 0.5 per cent higher, off a recent record 1,088.11 euros.

“Given the fact that the Greek crisis continues to be unresolved, and with the US pending debt ceiling limit and its fiscal imbalances, gold is being turned to as a currency where other paper currencies are potentially being debased,” said Mark Luschini, chief investment strategist at financial services firm Janney Montgomery Scott, which manages $US54 billion in assets.

The euro slid, with investors locking in gains following a vote of confidence in the Greek government and as they braced for a crucial decision on the country’s austerity plans.

Bullion investors were paying close attention to talks over the US debt limit, as US lawmakers launched a crucial week of debt-reduction talks seeking to break through differences on taxes and healthcare.

Gold’s rally swept the platinum group metals off their session lows and into positive territory. Platinum was up 0.1 per cent at $US1,746.24 an ounce, while palladium was also up 0.1 per cent at $US765.47.

Source: http://finance.ninemsn.com.au/newsmarket/aap/8264454/gold-prices-end-firmer

Tags: gold prices