Gold Recovers From 1% Fall On US Bond-Buying Hopes

Gold prices recovered on Wednesday from a near one per cent fall in the previous session as investors’ hopes of the U.S. bond-buying program staying intact
for some more time overshadowed their fears of slowing bullion demand in India, the world’s top consumer.

Investors are awaiting U.S. nonfarm payroll data on Friday, a key factor in determining whether the U.S. Federal Reserve would start winding down its $85 billion monthly bond purchases.

Gold, seen as a hedge against inflation, would benefit if the purchases continue.

U.S. job growth probably picked up only slightly in May, according to a Reuters survey of economists, suggesting the economy is still in a rut and not ready for the Fed to dial back its monetary support.

“Traders are positioning themselves for the upcoming labour data in the United States. If the data is weak, there will be stronger justification for letting the bond-buying stay a while longer,” said Joyce Liu, an investment analyst at Phillip Futures.

Spot gold rose 0.5 per cent to $1,406.26 an ounce by 0314 GMT, after falling 0.9 per cent on Tuesday due to new import rules imposed by India. U.S. gold rose $8.70 to $1,405.9.

Comments by Fed officials in recent weeks have fuelled speculation the central bank could be just a few months away from tapering a bond-buying program intended to keep interest rates low and boost employment.

Chairman Ben Bernanke said last month the U.S. housing and employment markets have to show continued recovery for the monetary stimulus to be eased.

INDIA CONCERNS

New rules by India’s central bank on Tuesday sparked fears of slowing demand in the country, where gold is bought in abundance for weddings and auspicious days.

India extended a ban on deposit-based purchases to cover all imports apart from those used to make jewellery for export.

The move came after Monday’s data showed gold imports in India, which is attempting to reduce its current account deficit, jumped to around 162 tonnes in May from 142.5 tonnes in April despite a rebound in prices.

“Markets are speculating that the India ban would reduce imports in June,” said Liu of Phillip Futures. “It makes sense because we don’t have any major festival in June like we had in April and May.”

Declines in holdings of gold-backed exchange-traded funds (ETFs) resumed. Holdings of SPDR Gold Trust, the world’s largest gold ETF, fell 0.27 per cent to 1,010.45 tonnes on Tuesday. The outflows had stopped last Wednesday after a three-week period that saw investors exit in droves.