Gold up nearly 2 percent on stimulus hopes for U.S., Europe

Wed Jul 25, 2012 2:02pm EDT
 
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By Frank Tang

NEW YORK (Reuters) - Gold rose nearly 2 percent on Wednesday, outperforming equities for the third day in a row as renewed talk of U.S. and European monetary stimulus boosted the precious metal's appeal to investors seeking an inflation hedge.

Bullion was poised for its biggest daily rise in a month on speculation the European Central Bank will create new money to fund rescue operations for troubled euro zone countries, traders said.

Late on Tuesday, gold got a boost from talk that the Federal Reserve was exploring new tools to boost U.S. growth.

"The gold market has been looking for any hints of any quantitative easing program. You are seeing this big bounce today off the fact that there could be something going on in euroland," said Jeffrey Sherman, commodities portfolio manager at DoubleLine Capital LP, which has $38 billion in assets.

Options-related buying above the popular $1,600 call strike price also lifted underlying futures ahead of Thursday's COMEX August option expiry. In addition, technical support helped as the metal now appears moving closer to break out of a trading range following Wednesday's rally, dealers said.

Spot gold was up 1.9 percent at $1,609.26 an ounce by 1:36 p.m. EDT (1736 GMT), having hit a near three-week high at $1,609.91 earlier in the session.

U.S. gold futures for August delivery were up $32.20 an ounce at $1,608.40, with trading volume on track to be the strongest in over a month, preliminary Reuters data showed.

Gold has held in a $75 range in July, its narrowest monthly spread since April. Weak seasonal buying in top bullion consumers such as India and China, waning inflows into gold-backed exchange-traded funds and euro zone debt jitters have limited price gains.   Continued...

 
Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011. REUTERS/Mike Segar