Gold rises from two-week low ahead of Fed meeting

October 28, 2014

London (Oct 28)   Gold rose as interest from price-sensitive buyers in China lifted it from two-week lows, though moves were muted ahead of a U.S. Federal Reserve meeting later on Tuesday.

The Fed is tipped to announce the end of its massive bond-buying stimulus programme, known as quantitative easing (QE), when it ends the two-day meeting on Wednesday.

Spot gold was up 0.2 percent at $1,227.86 an ounce by 1033 GMT, off an early low of $1,222.20 an ounce, its weakest since Oct. 15. U.S. gold futures for December delivery were down $1.40 an ounce at $1,227.90.

"Traders will probably stay on the sidelines until tomorrow evening, when the Fed comes out with its announcement," Commerzbank analyst Daniel Briesemann said.

"If the Fed announces they will end QE3, which should be on the cards, we expect to see the dollar appreciating further against the euro, and that may weigh on gold."

Investors will also be watching the Fed's statement for signals on the timing of any interest rate increase and its view on the global economy.

The Fed is expected to reinforce its stated willingness to wait a long while before increasing interest rates after a volatile month in financial markets that saw some measures of inflation expectations drop worryingly low.

A delay in any rate rise could boost gold, a non-interest-bearing asset.

With U.S. inflation weak, the European economy stumbling and the dollar on the rise, the big question is to what extent Fed officials acknowledge risks to their expectations that the U.S. recovery will continue to strengthen and allow them to raise rates around the middle of next year.

Gold has gained nearly 4 percent on fears of a global slowdown since dropping below $1,200 this month.


Overnight in Asia, some buying out of China lifted gold from its early lows.

"There were some stops triggered once we breached yesterday's low, but China walked in and pushed up gold," one Hong Kong trader said.

"People are nervous ahead of the FOMC and big position changes are unlikely. For the moment I think we will hold between $1,220 and $1,240."

Data on Monday showed China's net gold imports from main conduit Hong Kong jumped to a six-month high in September as the world's biggest consumer stocked up ahead of its National Day holiday.

But imports have slowed since the holiday, traders said, suggesting that gold may lose this source of support.

Among other precious metals, silver was up 0.9 percent at $17.23 an ounce. The gold-silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, eased back to 71.1 on Tuesday from last week's five-year high of 72.7 as silver outperformed.

Outflows from silver-backed exchange-traded funds have risen to 11.51 million ounces in October, the largest monthly decline since May last year, UBS said in a note.

"In spite of chunky outflows this month, the year-to-date flow for silver remains positive at 17.15 million ounces," it said. "Silver ETFs continue to be resilient in the face of poor market sentiment, however silver needs more than that to regain favour among investors."

Spot platinum was up 0.3 percent at $1,251.90 an ounce and spot palladium gained 1 percent to $785.25.

Source: Reuters

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