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Sep 26, 2012, 12.22 PM IST
Gold edged up on Wednesday as recent stimulus measures by central banks supported bullion's appeal as a hedge against inflation, although a firm dollar and a shift in investor focus to the euro zone debt crisis capped gains.
Moves by the European Central Bank and the Federal Reserve to ease monetary policy propelled gold to a 6-1/2-month high near $1,790 an ounce last week, but failed to send it above the key $1,800 level as investors looked for fresh stimulant.
Spot gold inched up 0.2 percent to $1,763.36 an ounce by 0353 GMT. U.S. gold traded nearly flat at $1,766.
Beyond the immediate consolidation, gold is expected to draw more interest as investors seek a hedge against loose monetary policies that create a low interest rate environment and raise inflation outlook.
Also, latest news on central banks adding to their gold reserves helped underpin bullion's sentiment.
"There aren't many places to go for investors," said a Hong Kong-based trader. "Buying precious metals seems to be one of the places for them to step out of fiat money. Everyone that can be in gold is in gold now."
Fiat currencies are government-issued and their value is based on the issuer's guarantee to pay the face amount on demand.
Investment interest in gold has surged over recent weeks, with holdings in physically backed exchange-traded gold funds hitting record highs. Speculative net length in U.S. gold futures and options are at the highest in nearly seven months.
But relatively low volatility and high selling interest in U.S. gold options market curbed gold's ascent, the Hong Kong-based trader said.
EYES ON EURO ZONE, AGAIN
After the central banks on both sides of the Atlantic announced their plans on bond purchases, investors are once again concerned whether these stimulus measures will have the desired effect of boosting the global economy.
Protesters in Madrid clashed with police on Tuesday as the government prepares a new round of unpopular austerity measures for the 2013 budget to be announced on Thursday.
Housing and consumer confidence data in the previous session showed signs of recovery in the U.S. economy, but a Fed official said the central bank's latest monetary stimulus will not do much to boost the economy.
Worries about the euro zone sent the single currency to a near two-week low, while the dollar index rose to its highest since September 13, putting pressure on dollar-priced commodities by making them more expensive for buyers holding other currencies.
"Even if QE3 proves successful, growth over the remainder of this year will likely be much lower. Global leading indicators have deteriorated markedly in the past month and are pointing to the risk of a big slowdown in the manufacturing sector, whilst economists are cutting their forecasts for Chinese and European growth," Barclays Capital said in a research note.
(Editing by Himani Sarkar)
Jun 18 2013, 22:39
- in MARKET OUTLOOK
Jun 18 2013, 22:39
- in Business