30/08/07: Gold market holds its breath on Fed action

The gold market eased yesterday (August 30th), with gold futures for December delivery falling $1.50 as investors refrained from taking bold positions.

Ben Bernanke, head of the Federal Reserve, is due to announce the likely September strategy of the Monetary Policy Committee in a speech today (August 31st), with investors aware that potential interest rate cuts could weaken the dollar and make gold buying a more attractive option.

Yesterday the strength of the dollar, up against the Euro and the Yen, meant that gold bullion buyers were not as eager to invest in the precious metal.

News from the Federal Reserve is eagerly anticipated by the gold trade, with many hoping that a cut in interest rates will inject liquidity into the stock market and weaken the dollar to the benefit of gold.

"If there is a rate cut that would be bullish for gold because it might lead to weakness in the dollar," said Tom Winmill, portfolio manager for the Midas Fund, an investor in gold stocks and natural resource companies.

Buying gold is often a popular strategy for investors when inflation is on the horizon, explaining the attention paid by the gold market to any indications of interest rate and liquidity changes from the Federal Reserve.