Gold hits 3-week high ahead of US rate decision
Gold rose in the first-half of European trading on Wednesday, hitting a 3-week high of $662 ahead of the interest-rate decision due from the US Federal Reserve later today.
"The medium- and longer-term outlook for the yellow metal remains strong," said analysts at Standard Bank earlier.
"A push to the next resistance level of $672 is very likely barring any surprise decision from today’s Federal Open Markets Committee decision on US Dollar interest rates.
"Support should now be positioned around the $650 area." (For a longer-term technical reading of gold, click here now...)
Gold priced in Sterling also turned sharply higher this morning, after minutes from the most recent Bank of England meeting dampened expectations of a rise in UK interest rates in early April.
Eight members voted to keep rates at 5.25% in March. One member even voted for a cut!
By lunchtime in London, that put Sterling more than half-a-cent lower versus the Dollar, helping to push the Sterling price of gold above £337 per ounce.
For Eurozone investors wanting to buy gold, the metal hit €497. Versus the Japanese Yen, gold touched a 3-week high of Y78,000 per ounce.
Today's Fed decision on US interest rates comes amid the ongoing collapse of subprime mortgage lenders in the States. (You can read more about the Dollar, gold and the US mortgage market – simply click here...)
Plus there's confusion over comments made yesterday by Bank of China governor Zhou Xiaochuan.
China famously holds $1 trillion in foreign currency reserves, the vast bulk in US Dollars and T-bonds. According to Emerging Markets magazine, a Euromoney publication, Zhou now warns that:
"Many people say that foreign exchange reserves in China are large enough. We do not intend to go further and accumulate reserves."
Bloomberg reports arguments over the exact translation of Zhou's words. And so far today the Dollar had only dipped on the currency markets.
But "any slowdown in [China's] accumulation [of Dollars] may be interpreted as bearish for the Dollar and therefore bullish for gold," notes James Steel, an analyst at HSBC.
Today's Fed decision also comes after the Dollar has dropped 3.7% on its trade-weighted index since June – the last time the Fed raised Dollar rates during its two-year hiking cycle.
"As the Dollar has weakened then speculators and investors have been happy to buy back into gold," says Darren Heathcote at Investec in Sydney.
In the equity markets, meantime, the world's largest ever financial services merger draws closer.
Barclays Bank yesterday agreed initial terms – except the price – with ABN Amro, the Dutch investment bank it's looking to buy.
In two separate statements, Barclays and ABN both said the chairman would be picked by the board of ABN – and the head office would also be based in ABN Amro's hometown of Amsterdam.
"These aren't the most important issues, however" noted one Dutch money manager.
"The important issues are the price, the strategy, and what kind of synergies ABN Amro and Barclays can generate considering they have little overlap."
For British investors, the value of the merger will certainly count. Sterling had staged a recovery following Tuesday's inflation data. It showed the fastest rise in living costs since 1991.
But with ABN worth at least €59 billion according to current stock market prices, this high-profile flow out of Sterling may well dent the British currency.
The biggest financial services merger in history should also give investors pause for thought. Trading 150% higher in just four years, global stock markets have risen on a flood of cheap money.
But confidence in that money is now evaporating. To read more – and to find out what it means for global asset markets – click here now...