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Spot gold rose in Asia Thursday but prices were rangebound after this week's sharp advances amid continuing bullish sentiment, traders and analysts said. Following the Federal Reserve's aggressive discount and fed-funds rate cuts, participants noted rising suspicion in the market that the impact from the subprime meltdown on the US economy may be stronger than expected.
The Fed's unanimous decision pointed to more bad news to come for the US economy, said Westpac Analyst Robert Rennie, with sky-high oil, gold and wheat prices leaving the Fed to face conflicting policy issues on further rate cuts and containing inflation. Gold built on the strongly positive lead from the Fed's cuts freeing up some liquidity and a strong rally by the Australian dollar, New Zealand dollar and euro against the US currency, said a Singapore-based trader.
Gold could easily breach Tuesday's high of $727 a troy ounce later in the trading day, particularly if the euro remains above $1.40 against the dollar, he said. But the increase in long positions in gold could result in some profit-taking, he added. Fat Prophets Analyst Gavin Wendt said the outlook for gold and oil was strongly positive, and retained a medium record price target of $1,000/oz for gold. US economic data will be keenly watched in the coming weeks for clues on US economic health, as will third quarter results from US banks, with Goldman Sachs due to report later Thursday.
"US housing starts weren't great, and inflationary pressures are on the up. But let's not forget that the Fed, now that it has moved to provide liquidity to the market, can always put rates back up," a trader said. Meantime, gold miners may increase the pace of de-hedging should prices rally above $730-735/oz, a Tokyo-based trader said, noting that Newcrest Mining has yet to buy back the remaining half of its hedgebook after the buyback of 2.3 million ounces earlier this month.
Other miners, foremost Barrick Gold and AngloGold Ashanti, still have large hedgebooks. "I'm not really sure they can stand aside or not. Those mining companies might cover their shorts quickly," he said.
