Gold Up As Investors Weigh Safe-Haven Demand Against Stimulus Fears

Gold edged higher on Wednesday after a 1 percent drop in the previous session as investors weighed prospects for increased physical demand against reduced monetary stimulus speculations from the United States Federal Reserve Bank.

As of 2:36 ET, gold for immediate delivery edged 0.01 percent or 0.08 points higher to trade at $ 1,244.94 an ounce, after opening at $1,242.81. Earlier it hit a high of $1,249.11 and a low of $1,241.72.

Reports showed physical buying has improved in China, with volume on the Shanghai Gold Exchange’s benchmark contract topping 14,000 kilograms per day since June 25 – more than three times last year’s daily average. Gold premiums in Hong Kong are seen as a guide to demand in China – the largest consumer after India in 2012.

Gold received a boost also by the growing unrest in Egypt as rising tensions in the Middle East typically increase gold’s appeal as a safe haven investment. President Mohamad Mursi defied protests demanding his resignation.

Other precious metals were as follows:

- Silver rose 0.30% to trade around $ 19.50

- Platinum fell 0.39% to $ 1,363.50

- Palladium edged 0.20% lower to $ 687.25

Federal Reserve officials sought to calm investors by assuring them the Fed won`t start trimming its bond purchases until the economy has strengthened. Officials said Tuesday the central bank was likely to continue supporting the economy through its stimulus program.

The head of the Federal Reserve Bank of New York confirmed stimulus will likely continue to support the economic recovery despite market worries that it was soon pulling back. While Fed Board Governor Jerome Powell said the Fed`s easy monetary policy will likely be warranted for some time amid high unemployment and low inflation rate.

Investors are waiting for the U.S. nonfarm payrolls data due on Friday to determine the strength of the U.S. economic recovery. Investors have been taking their cues from U.S. jobs data as they attempt to gauge when the Federal Reserve will begin to slow the pace of its bond buying program this year.

The USDIX dollar index is currently trading around 83.80 after opening at 83.82, having so far hit a high of 83.84 and a low of 83.74.

Traders shifted their focus to the monetary decisions due Thursday by the two giant European central banks as they will announce their monetary decisions for July. The Bank of England (BoE) and the European Central Bank (ECB) are set to announce their policy decisions, with analysts expecting them to maintain their policies.

Gold traders will closely watch ECB and BOE where a looser monetary policies would support gold`s rally, as investors fearing higher inflation resulting from such policies resort to bullions as a hedge against inflation.