London 10/09/2012 - Gold held its ground on Monday morning, drifting sideways following sharp gains on Friday on hopes that the US Federal Reserve will join concerted central bank action later this week.
Spot metal was last at $1,733.50/1,733.90 per ounce, down a fractional $1.70. On Friday, it pushed to $1,742.38, a seven-month high.
"The latest price rally has been driven mainly by hopes that central banks will implement monetary easing measures," Commerzbank said in a note. The US Fed meets in Washington on Thursday.
"[Our economists] note that Fed Chairman Ben Bernanke made clear in his speech at Jackson Hole that he is growing impatient with the pace of the labour market recovery, and this was also the message of the August FOMC minutes," Barclays said in a note.
Bernanke placed specific emphasis on jobs figures when he told assembled central bankers the Fed would provide "additional policy accommodation as needed to promote a stronger economic recovery ".
"If the FOMC does announce an overall purchase amount, our economists would expect it to be in the $500 billion range, evenly split between Treasuries and agency MBS," Barclays said.
"This should benefit gold as a store of value and as an alternative currency. We are therefore convinced that the gold price will continue to climb," Commerzbank added.
Should the Fed chose to act, it would be the third major central bank to do so in a week.
Both the European Central Bank (ECB) and the People's Bank of China (PBC) have announced measures: the ECB promising to unroll 'unlimited bond buying' to lower borrowing costs of troubled eurozone countries; the PBC by announcing infrastructure spending worth a trillion yuan ($155 billion).
The ECB plans will face two key tests this week, with a German court expected to rule on the constitutionality of the move, and with Dutch voters going to the polls to elect a new government, following a coalition collapse in April over a budget dispute.
Despite its high price, physical demand for gold appears robust, especially in China, with the Statistics department of Hong Kong saying China imported 75.8 tonnes of the metal from Hong Kong in August, 12 percent more than the previous month.
In companies news, the on-again, off-again merger between Glencore and Xstrata appears to be on again, with Glencore increasing its share offer to 3.05 for every Xstrata share, up from 2.8. It also agreed to keep Xstrata CEO Mick Davis at the top for a period of six months. Glencore said that this is its final offer.
Currencies saw the euro losing some ground against the dollar. It was last at $1.2772/1.2774, down $0.45. The dollar index was last at 80.36, up 0.21.
OTHER PRECIOUS METALS HOLD ON TO GAINS
Platinum was last at $1,591.25/1,601.25 per ounce, gaining $9.55.
Wage negotiations between Lonmin and its labour force continues, following violent strikes which killed 44 last week.
Palladium also posted gains, adding nearly one percent to $655.39/661.39 per tonne, up $5.89.
Silver was virtually unchanged, up just one cent at $33.67/33.72.
(Editing by Martin Hayes)