Forexpros – Gold futures were higher during European morning trade on Wednesday, trading close to a key resistance level as market participants entered the market ahead of a policy-setting meeting by the European Central Bank later in the day, amid hopes for more stimulus.
Gold also climbed on the possibility the Federal Reserve will consider more action to stimulate growth in the world’s largest economy.
On the Comex division of the New York Mercantile Exchange, gold futures for August delivery traded at USD1,628.95 a troy ounce during early European trade, climbing 0.75%.
It earlier rose by as much as 0.85% to trade at a session high of USD1,629.95 a troy ounce. Prices touched USD1,631.25 on June 1, the highest since May 8.
Gold futures were likely to find support at USD1,532.55 a troy ounce, the low from May 30 and near-term resistance at USD1,639.05, the high from May 8.
Investors hung on to hopes for action by global central banks and other authorities to stimulate growth and boost the world economy, boosting the appeal of the precious metal.
Gold prices have rallied on past monetary stimulus measures. Investors tend to pile in to the yellow metal on fears that excess liquidity would put a damper on the value of paper currencies and spark inflation. The precious metal is widely considered a hedge against inflation and a store of value.
Finance ministers from the Group of Seven industrialized nations held a teleconference call on Tuesday to discuss the euro zone’s escalating debt crisis, however no major agreements or plans were formed.
Markets now shift their attention to the European Central Bank’s monetary policy meetings later in the day.
Although the market consensus is that it will hold its key interest rate unchanged at 1%, there is some speculation by market players that the ECB could announce liquidity injections in to Europe’s troubled financial system.
Others expect the central bank to renew its suspended government bond-buying program to help ease pressure on Spain’s rising borrowing costs.
In addition, Federal Reserve Chairman Ben Bernanke will testify on Thursday before a congressional committee about the state of the U.S. economy. Gold traders will be looking for clues as to the likelihood of a fresh round of monetary easing, which could potentially hurt the U.S. dollar and support gold.
The Wall Street Journal, citing interviews and Fed speeches, reported late Tuesday that the U.S. central bank is mulling new measures to stimulate growth in the world’s largest economy.
Charles Evans, president of the Chicago Federal Reserve Bank called earlier for aggressive policy easing in the U.S., citing the recent run of “soft” economic data.
QE has been a key driver in gold’s bull run, as it keeps interest rates and borrowing costs low, which makes gold more attractive compared with yield- or dividend-bearing assets such as bonds or stocks.
Gold gained as much as 15% earlier this year to hit USD1,790 an ounce after the Fed said in January it would keep interest rates near zero until at least late 2014 and indicated that it could introduce a fresh round of asset-purchases.
However, prices have lost almost 9% since late February, amid growing concerns the European debt crisis has been escalating, which has fueled demand for the yellow metal’s hedge, the greenback.
Elsewhere on the Comex, silver for July delivery surged 1.95% to trade close to a four-week high of USD28.96 a troy ounce, while copper for July delivery climbed 1.3% to trade at USD3.333 a pound.
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