July 12, 2013 6:56 pm

Gold in relief rally on dovish Fed comments

Gold took its cue from the Federal Reserve, and finished the week almost 5 per cent higher as relief spread following chairman Ben Bernanke’s dovish comments, as well as the fall in the dollar.

The yellow metal was hit last month by expectations of an early tapering of the US monetary easing programme, but jumped after Mr Bernanke said the US economy needed “highly accommodative” monetary policy for the “foreseeable future”.

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Investors scrambled for gold after Mr Bernanke’s comments midweek as well as the minutes of the most recent meeting Federal Open Market Committee, where many members said an improvement in the jobs market was needed before the slowing of asset purchases could begin.

With the record level of gross short positions in the US gold futures markets, the accommodative comments led to a rush to cover “short” or bearish positions. Gold almost breached $1,300 a troy ounce on Thursday, rallying 10 per cent from its recent low of $1,180.71. On Friday, it traded at around $1,283 a troy ounce, up 4.8 per cent on the week.

Despite Mr Bernanke’s comments this week, some economists still believe the Fed’s slowing of asset purchases will start sooner rather than later.

Economists at Barclays expect the FOMC to taper bond buying at the September meeting and conclude the purchases in March 2014.

Suki Cooper, precious metals analyst at Barclays in New York, said a deterioration in the US economy would be required for prices to make a sustained move higher.

“Given our economists’ view on Fed tapering and softer physical demand, we believe the recent rally is likely to be short lived,” she said.

With physical demand from Asia continuing to offer support amid the downturn in gold prices, investors will be focusing on the Chinese second-quarter GDP figures out on Monday.

Although the GDP figure is not usually an important indicator for precious metals markets, a weak number could trigger reaction, said Marc Ground, analyst at Standard Bank in Johannesburg.

“The market might be buoyed to some extent by hopes of stimulus, after Chinese Premier Li stated earlier this week that economic growth and employment must stay above a certain floor,” he said.

Other precious metals were also higher, with silver up 5.8 per cent on the week to $19.81.

Among industrial metals, copper for three month delivery on the London Metal Exchange gained over 4 per cent to $7,049 a tonne on Thursday before finishing the week at $6,951.50, a weekly gain of 2.7 per cent. Aluminium gained 4.1 per cent to $1,843.64 a tonne.

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