Gold rises on dollar slide, FOMC in focus

By Frank Tang

NEW YORK (BestGrowthStock) – Gold rose on Tuesday as a sharp dollar drop prompted bullion buying a day before the Federal Reserve was expected to announce another round of U.S. government bond purchases to boost the economy.

Strong physical bullion demand from leading consumers India and Turkey ahead of major gold-buying events also buoyed prices, analysts said.

The U.S. Federal Reserve opened a two-day meeting on Tuesday that is expected to conclude with a decision to pump hundreds of billions of dollars into the tepid economy.

“As long as the monetary authorities are expanding their balance sheets, the propensity for gold to move higher is… rising,” said Dennis Gartman, hedge fund manager and publisher of the Gartman Letter.

Analysts expectations range from $250 billion to $2 trillion of bond purchases by the Fed in a second round of quantitative easing (QE2). Traders are bracing for a quick rise in the dollar — and commensurate fall in commodities — if the Fed takes a less aggressive approach.

Policymakers are hoping purchases of U.S. government bonds will further reduce borrowing costs and spur more spending, which would be bullish for assets such as gold.

Spot gold rose 0.4 percent to $1,355.45 an ounce at 2:30 p.m. EDT.

U.S. gold futures for December delivery settled up $6.30 at $1,356.90. Futures trading volume of 122,793 lots was about two-thirds the 30-day average and was the lowest since October 11, preliminary Reuters data showed.

From the two-day meeting in Washington, markets are pricing in a commitment to buy at least $500 billion in Treasury debt over the coming months.

“People are convinced that QE will be substantial. (They are) buying the rumor said VTB Capital analyst Andrey Kryuchenkov. “The Fed does not want to disappoint the market.”

Under pressure from uncertainty about the Fed, the dollar weakened 0.7 percent against a basket of currencies (.DXY: ), while the Australian dollar jumped after Australia’s central bank surprised with a rate hike.

All eyes are on the U.S. central bank, with the scope and timing of easing measures set to have a major impact on financial markets. Gold has benefited from expectations fresh easing may hurt the dollar and ultimately prove inflationary.

(Graphic: http://link.reuters.com/kyw48p )

If the Fed’s purchase is smaller than $500 billion, the dollar could stage a relief rally, which would put gold under pressure, analysts said.

“I suspect there could be a sell-the-news type of reaction” because of a knee-jerk dollar rally, and the gold market looked overextended, said James Dailey, portfolio manager of the TEAM Asset Strategy Fund (TEAMX.O: ).

DHANTERAS, DIWALI APPROACH

Indian gold consumers kept buying ahead of the key Dhanteras festival, which celebrates prosperity. It is swiftly followed by the Diwali festival of light, another key gold-buying occasion for the world’s biggest bullion consumer.

Turkey’s gold imports rose to 9.07 tonnes in October, compared with 2.45 tonnes the previous month, the Istanbul Gold Exchange said on Tuesday. Turkey is the world’s third-biggest gold consumer.

Silver traded up 0.3 percent at $24.86 an ounce, off the previous session’s 30-year high of $25.03 an ounce.

Data from the U.S. Mint showed its silver bullion coin sales were up nearly 20 percent in the first 10 months of this year from a year before, to 28.1 million ounces from 23.4 million.

According to The Silver Institute, based in Washington, the Royal Canadian Mint reported 2010 sales of its Silver Maple Leaf bullion coin are up 30 percent from 2009 figures to date.

Platinum climbed 0.5 percent to $1,713.99 an ounce, while palladium dropped 1 percent to $642.22.

(Additional reporting by Barani Krishnan and John Parry in New York, Jan Harvey in London; Editing by David Gregorio)

Gold rises on dollar slide, FOMC in focus