Gold Steady, Trading in Tight Range

By: Ben_Traynor

THE U.S. DOLLAR gold price continued holding steady on Thursday morning, trading in a tight range around $1536 per ounce – 2.6% off May's spot market record high – while stocks and commodities rose ahead of UK and Eurozone interest rate announcements.

Silver prices gained to hit $37.23 per ounce – 2.7% up on the week so far.

"For the time being it seems that gold ought to stay trapped between $1530 and $1550," says Swiss precious metals group MKS.

"[Gold] is lacking any momentum for a rally while on the other side the support at $1530 seems quite strong."

Gains made by the gold price on Wednesday "don't feel decisive enough" reckons one bullion dealer here in London.

The Bank of England's Monetary Policy Committee voted Thursday to keep interest rates on hold at 0.5%, where it has held rates since March 2009.

The doves – those members of the MPC who are opposed to rate rises – "have the upper hand" at the Bank of England, said Brian Hilliard, London-based economist at Société Générale and a former Bank of England official, speaking before the announcement.

"The market is scaling back its rate expectations," in the face of "concerns about growth" he added.
Across the English Channel, meantime, the European Central Bank also voted to keep its policy rate steady, at 1.25%, its level since April this year.

Analysts on Thursday morning were expecting ECB president Jean-Claude Trichet to use the phrase "strong vigilance" in his afternoon press conference to signal a rate hike next month.

"The data from the Eurozone has held up remarkably well in recent weeks in contrast to countries like the US and the UK," Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi told the Financial Times on Thursday morning.

Figures published Wednesday show that Eurozone GDP for the first quarter of the year grew 2.5% compared to the same period last year. By comparison, the UK economy grew 0.5% over the same period, while US data show growth at 1.8%.

Signaling a rate hike "reinforces the credibility of the ECB, which strives to highlight...that its role is to deliver price stability not solve the Eurozone debt crisis," said Halpenny.

"Greece is only a risk scenario for the ECB," adds Ken Wattret, chief euro-region economist at BNP Paribas in London.

"Assuming that the Greek problem doesn't become systemic, the ECB will press on." 

Both interest rate announcements had little immediate impact on the gold price.

In Vienna, meantime, the Organization of Petroleum Exporting Countries (OPEC) failed on Wednesday to agree on production quotas, after Iran persuaded five other members to vote against Saudi Arabia's proposal to raise output by 1.5 million barrels a day. 

The five included Libya, whose production – which stood at 1.58 million barrels a day in January – is cut off from the world market as a result of ongoing conflict.

OPEC's failure is "bullish" for oil prices, says Andrey Kryuchenkov, London-based analyst at VTB Capital.

"The market remains undersupplied."

Libyan production, which stood at nearly 1.6 million barrels a day in January, has been offline since military action began in the country. 

"Spare capacity is not what has been portrayed by OPEC," adds Lawrence Eagles, head of energy research at JP Morgan.

"Every OPEC member [will have to] produce at its maximum in the next few months to ensure the oil market is well supplied."

Over in the US, ratings agency Fitch has joined Standard & Poor's and Moody's in warning that the country's triple-A credit rating is at risk.

Fitch warned Wednesday that failure to agree an increase in the federal debt limit by August 2 would "imply a crisis of governance", and would risk the US missing payments on Treasury notes due on August 15.

Fitch warns that if that happens, the US would be in "restricted default", and Fitch would temporarily downgrade its debt to junk status.

Last week Moody's said it would place the US under review for possible downgrade if there no progress on raising the debt limit. Standard & Poor's changed its outlook on the US rating from "stable" to "negative" in April.

By Ben Traynor
BullionVault.com

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Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

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