Gold steady near 4-month high

Gold steadied around its highest in four months on Tuesday ahead of a meeting of central bankers at the weekend that could outline the likely course of U.S. monetary policy, while a stoppage at a major mine kept platinum near 3-1/2 month highs.



So far in August, gold has gained 3.1 percent, putting it on course for its third successive monthly increase and the largest percentage rise in one month since January, fuelled in large part by an expectation for the U.S. Federal Reserve and the European Central Bank to take extra steps to keep borrowing costs low.

Central bankers and finance ministers from around the world are scheduled to meet at Jackson Hole, Wyoming on Aug. 31 and Sept. 1, and investors expect speeches by Fed Chairman Ben Bernanke to signal what measures the central bank might take and specifically, whether it will buy bonds to grease the wheels of the financial system by suppressing interest rates.

Spot gold was flat on the day at $1,663.16 an ounce by 1215 GMT, having touched a 20-week peak at $1,676.45 on Monday.

“There are a lot of stumbling blocks still on the road,” Peter Fertig, head of Quantitative Commodity Research said.

“There is strong opposition from the Republican party against further easing measures. There is still the risk of the fiscal cliff in the U.S. and therefore, it might be better from a timing point of view to implement further steps in the final quarter of the year instead of in September,” he said.

“That said, $1,700 an ounce could be surpassed if we get dovish remarks from Bernanke over the outlook for the remainder of this year and on quantitative easing,” he added.

A patchy run of U.S. economic data over the past few weeks together with comments from Fed policymakers that the fragility of the recovery may warrant the use of additional policy tools such as mass-purchases of government bonds to keep interest rates low has pushed equities to their highest in four years and lifted the gold price.

Gold, which has doubled in value since the Fed first employed this tactic, known as quantitative easing, in late 2008, had previously stuck to a range of little more than $100 an ounce over the last three months, hemmed in by doubt over whether or not the Fed will use QE or another approach.

“If we get QE3, gold could rise to $1,680 or $1,700,” said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. “But for now, it is still unclear what is going to happen, though hopes for QE are keeping gold supported at the $1,650 level.”

Investors soak up gold

In spite of the uncertainty that has hung over the market in recent weeks, investors have gradually increased their ownership of gold.

Holdings of gold in exchange-traded products hit a record 71.53 million ounces on Friday, driven by a broad-based flow of metal into most of the major ETPs monitored by Reuters.

COMEX options for September delivery 0#GC+++> that expire later on Tuesday show most open interest in at-the-money options is evident at $1,650 calls, which give the holder the right but not the obligation to buy a set amount of gold at this price.

September options contracts account for less metal that the more-active October options strip, yet open interest in $1,650 calls at 5,284 lots is equivalent to 10 percent of total open interest in at-the-money strikes between $1,600 and $1,750.

Adding to the bullish undertone in the gold market was concern about supply from South Africa, the world’s fifth-largest producer of the metal.

Tension in the South African mining industry has run high since 44 people were killed two weeks ago in clashes between police and striking miners at platinum producer Lonmin’s Marikana mine.

The South African chamber of mines said on Monday the country’s gold mining companies have been hit by union demands for wage hikes, but the industry has little room to budge as current collective agreements do not expire until June 2013.

“Although South Africa was only the world’s fifth-largest producer of gold, producing 186.8 tonnes last year, a prolonged supply outage would no doubt have far-reaching consequences, especially since investment demand is currently gathering pace again and thus removing gold from the market,” Commerzbank analysts said in a note.

Platinum has gained more than 10 percent to reach its highest levels in nearly four months in the last two weeks after workers downed tools at world number three producer Lonmin over wage increase demands and protests spiralled into violence.

Lonmin said on Tuesday only 8 percent of workers had reported for duty at its South African operations as it struggles to restart shafts halted for over two weeks.

Spot platinum was down almost 1 percent at $1,522.50 an ounce, while palladium fell 0.7 percent to $641.00 an ounce and silver edged up 0.6 percent to $30.83 an ounce.

Reuters


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