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Mon 27 Aug 2012 10:22 AM

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Gold hits 4-1/2 month high on Fed stimulus hopes

Spot gold was up 0.3 percent at US$1,674.89 per ounce by 0324 GMT, after posting a 3.4 percent rise last week

Gold hits 4-1/2 month high on Fed stimulus hopes
gold, commodities

Gold rose to the loftiest level since mid-April on Monday, extending strong gains from last week as expectations for further monetary easing from the U.S. Federal Reserve kept sentiment buoyant.

The Fed had room to deliver additional monetary stimulus to stoke economic growth, said the central bank's chief Ben Bernanke, boosting anticipation for easier monetary policy, which would lure investors to gold, a hedge against inflation as a result of rampant cash-printing.

"There are very strong expectations for the Fed's action, and the technical breakthrough last week will continue to boost prices," said Li Ning, an analyst at Shanghai CIFCO Futures.

Investors will closely watch the central bank symposium due to take place in Jackson Hole, Wyoming, later this week for clues on the next steps central banks will take to curb the euro zone debt crisis and stimulate global growth.

Spot gold was up 0.3 percent at US$1,674.89 per ounce by 0324 GMT, after posting a 3.4 percent rise last week.

US gold rose 0.3 percent to US$1,677.80.

Technical analysis suggested that spot gold could rise to US$1,693 per ounce during the day, said Reuters market analyst Wang Tao.

The European Central Bank is considering setting yield band targets under a new bond-buying programme to allow it to keep its strategy shielded and avoid speculators trying to cash in.

Meanwhile, the Bundesbank likened ECB bond-buying plans to a dangerous drug, and a conservative ally of German leader Angela Merkel said Greece should leave the currency bloc by next year.

Speculators raised their net long positions in US gold futures and options to 140,126 lots in the week ended August 21, the highest since the beginning of May, said the US Commodity Futures Trading Commission.

Investors also piled into physically backed exchange-traded gold funds, lifting the holdings of gold ETFs tracked by Reuters to a historical high above 71.4m ounces.

"The key is Jackson Hole," said Nick Trevethan, senior commodity strategist at ANZ in Singapore, "Everyone is expecting Bernanke to play up the possibility and willingness to stimulate."

CFTC data also showed net longs in silver shot up nearly two-thirds to 17,452 lots, the highest level since early April, as silver prices rallied.

Spot silver hit US$31.20, the highest in nearly four months, before easing slightly to US$31.05, building on a weekly rise of nearly 10 percent, its strongest week since October.

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