Gold snaps 4-day decline, central bank meetings in focus

Loose monetary policies adopted by central banks have helped gold rally in the past few years
Gold bangles sit in a display case at a Dwarkadas Chandumal Jewellers store in Mumbai, India, on Monday, April 23, 2012. Gold demand in India, the worlds biggest importer, may climb as much as 25 percent during the Akshaya Tritiya festival this week, reviving jewelry buying curtailed by a nationwide shutdown. (Bloomberg)
By Reuters
Tue 05 Mar 2013 10:48 AM

Gold inched up on Tuesday to snap four sessions of decline, with investors expecting major central banks to stick to loose monetary policy at meetings this week, supporting bullion's appeal as a hedge against inflation.

Loose monetary policies adopted by central banks have helped gold rally in the past few years, as investors fearing higher inflation as a result of such policies parked funds in gold, to hedge against rising prices.

Gold's bull run lost steam in the past few months as speculation mounted that the Federal Reserve may curtail its bond purchase programme sooner rather than later, as the world's top economy has shown signs of recovery.

But some senior Fed officials have insisted on expansionary monetary policy, arguing the economic growth was not strong enough to reinvigorate the labour market.

"We are going through a very slow period and it is a situation where we need central banks to step up," said Jeremy Friesen, commodity strategist at Societe Generale in Hong Kong.

"If they do, it will be good for gold."

The balance sheet of the European Central Bank has effectively shrunk due to the early payment of a chunk of three-year crisis loans by banks, in contrast to the Fed's ongoing $85-billion monthly bond buying and the Bank of Japan's plan for aggressive monetary policy.

If the ECB launches more stimulus, or other central banks' accommodative measures offset the ECB's de facto tightening, gold could get a boost, Friesen added.

The ECB, BOJ and Bank of England will hold their policy meetings later this week, and are expected to maintain their dovish stance.

Spot gold had inched up 0.3 percent to $1,577.40 an ounce by 0308 GMT. US gold rose 0.3 percent to $1,577.10.

Technical analysis suggested spot gold is expected to rebound to $1,589 an ounce, as indicated by its wave pattern and a Fibonacci projection analysis, said Reuters market analyst Wang Tao.

Physical buying interest cooled in Southeast Asia, as buyers moved to the market sidelines, awaiting a direction in prices.

"We are not seeing as much buying as last week," said Brian Lan, managing director at GoldSilver Central Pte Ltd in Singapore.

"Most people did their purchases last week and are now holding back, wondering whether prices will further fall, before they commit themselves to buy more."

Investors continued to exit the SPDR Gold Trust, the world's top gold-backed exchange-traded fund, which fell for the tenth straight session on March 4 to a seven-month low of 1,253.283 tonnes.

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