Gold Is Back on the High Perch

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Gold rose close to a fresh 6-month high, amid inflation fears sparked by the prospect of a Spanish bailout and extended quantitative easing by the US Federal Reserve. U.S. gold futures for October delivery were up $26.90 an ounce at $1,780.5 after showing the low of $1753.2/troy ounce. Gold rose 1.5 percent on Thursday, on hopes for additional monetary stimulus from China and fresh austerity steps in Spain, which renewed fears about the euro zone.

Bullions also extended gains after the mixed data from US over its GDP and Unemployment claims which raised the fear among the mind of investors. Adding to it was Spanish announcement on details over economic reforms over austerity cuts in 2013 which was seen as concern in near term for acceptance.

Gold holdings  of SPDR gold trust, the largest ETF backed by the precious metal, declined to 1,320.78 tons, as on Sept 26. Silver holdings of iShares silver trust, the largest ETF backed by the metal, increased to 10,046.12 tons, as on Sept 26.

Gold moved up internationally on Friday extending the rally on Spanish austerity measures woes and US data. Gold importers in India, waited for prices to fall further as it was trading near its lowest level in more than three weeks due to a stronger rupee against US dollar due to various reforms and international pressure on dollar, offsetting firm global markets.

Gold, enticed by the bargain hunters and fortified by the poor economic health, ticked new life high in Euro and Swiss Franc amid twin fears of currency debasement and heightened inflation expectation. Investors grabbed the opportunity of keeping gold in portfolio whenever it took slight dip. This zeal would have stirred the Asian investors who have carried forward the same and thereby not letting the metal to come down at the early Globex.  Asian shares as well crawled back propelled by the developments from Europe with Euro showing strength.

Expect gold to extend its rally after Chinese firm Zhongrun Resources Investment Corp has granted  a premium buy of 42% stake in Noble Mineral Resources Ltd for AUD85 million ($88 million), sending shares of the Australian gold miner soaring 25%. Recent M&A activities from China would have been a clear indication of augmented gold demand.

From the eco calendar, the US consumer spending is likely to fall while Michigan confidence may also remain weak.  These all indicate a weaker dollar. Euro is likely to stay firm today which will also be supporting gold to bid high. The overall factor today will be worries and news from Spain, where Rajoy is keeping the EU and markets guessing and stressed.

China will be closing for a weeklong holiday and there is a good possibility that they may announce additional stimulus during this period.

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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