US GOLD - Central bank speculation fuels gold prices

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Tom Jennemanntom.jennemann@fastmarkets.comSenior North American Correspondent973-204-3383

Chicago 27/09/2012 - Gold on the Comex division of the New York Mercantile Exchange rebounded on Thursday on renewed stimulus hopes and technical buying.

Gold for December delivery was last up $12.50 at $1,761.00 per ounce. Trade has ranged from $1,753.20 to $1,766.10.

After yesterday's sharp fall, Comex gold got a technical bounce this morning, the CME Group said in a market commentary.

“While the Chinese move to add funds to their economy seems to have provided a countervailing force to the drum beat of global slowing this week, news that Indian gold importers were still thought to be balking at gold purchases is probably restricting the upward track in gold prices this morning,” it said.

The People's Bank of China this week pumped 365 billion yuan ($58 billion) into money markets; more easing is anticipated as the government tries to avoid a so-called hard landing. Monetary accommodation generally boosts metal prices because extra liquidity tends to debase paper currencies and can lead to future inflation.

In data, the number of first-time claims for unemployment benefits in the US fell 26,000 to 359,000, the lowest level since July.

But other US reports were less bright. Durable goods orders fell 13.2 percent in August to $198.49 billion, while second-quarter GDP growth was revised lower to 1.3 percent from a previously reported 1.7 percent.

In wider markets, the euro was level at 1.2874 against the dollar, while Germany's DAX and France's CAC-40 were up 0.35 percent and 0.73 percent respectively. The Dow Jones industrial average and S&P 500 opened 0.44 percent and 0.37 percent higher.

In other central bank news, Bank of Japan board member Takehiro Sato said that its latest easing programme of 10 trillion yen ($127 billion) might not be stout enough to simulate the economy adequately and that more action, such as the purchase of overseas bonds, might be necessary.

Elsewhere, Chicago Fed president Richard Evans argued that only after six months of 200,000 monthly jobs gains should the Fed should even consider ending its latest $40 million per month open-ended easing programme (QE3).

“These renewed commitments to monetary accommodation from central bankers have helped support the complex, although the damage to the market’s confidence in quantitative easing, after Fed President Plosser’s comments on Tuesday, has not been entirely undone,” Standard Bank said.

“We continue to believe that an accommodative monetary policy stance from the Fed will support precious metals, particularly gold and silver, well into 2013,” it added.

Philadelphia Fed president Plosser, a hawk, said earlier this week that the US economy is unlikely to see much benefit to growth or employment from further asset purchases.

In Spain, violent protests have broken out over proposed structural and fiscal reforms but Prime Minister Mariano Rajoy is widely expected to forge ahead with the unpopular plans.

"We know what we have to do, and since we know it, we're doing it," Rajoy is quoted as saying yesterday.

Rajoy has so far resisted calls to accept a bailout from the European Central Bank, with the yield on the country's 10-year bond dropping back below six percent.

In other precious metals, Comex silver for December delivery was up 33.5 cents at $34.275 per ounce. Trade has ranged from $33.905 to $34.475.

Platinum futures for January delivery were up $16.30 at $1,655.50 per ounce, while the most actively traded palladium contract was $8.20 higher at $634.05.

(Additional reporting by Eddie van der Walt, editing by Mark Shaw)
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