Gold Extends Biggest Monthly Gain Since January 2012 Before Fed

Gold rose in London, extending the biggest monthly gain since January 2012, as a three-day drop spurred more buying and investors awaited results of the U.S. Federal Reserve’s policy meeting.

The Bloomberg U.S. Dollar Index, a measure against 10 major currencies, was little changed before the central bank ends a two-day meeting today that may give clues on its outlook for reducing stimulus. Bullion is up 8.1 percent in July, heading for the first monthly increase since March.

Gold dropped 20 percent this year after some investors lost faith in the metal as a store of value and on speculation the Fed may curb its bond-buying program. Fed Chairman Ben S. Bernankesaid this month that it’s too early to decide whether to begin curbing purchases in September, after saying on June 19 that buying could slow if the economy improves. Gold’s plunge to a 34-month low on June 28 spurred demand for jewelry and coins.

Prices gained “on some short covering and light physical demand,” David Govett, head of precious metals at Marex Spectron Group in London, said today in an e-mail, referring to purchases to close out bets on price drops. The Fed statement and Bernanke’s comments “will be closely scrutinized to see if there are any mentions of quantitative-easing tapering. Ahead of this, I really don’t expect too much activity.”

Gold for immediate delivery rose 0.7 percent to $1,335.06 an ounce by 9:04 a.m. in London. Bullion for December delivery gained 0.7 percent to $1,333.80 on the Comex in New York. Futures trading volume was 17 percent below the average for the past 100 days for this time of day, data compiled by Bloomberg showed.

Fed Stimulus

The Fed is buying $85 billion of debt a month. While none of the 54 economists surveyed by Bloomberg July 18-22 expected policy makers to begin paring purchases at this meeting, half predicted a reduction to $65 billion per month in September.

“What we are looking for is some kind of guidance on the Fed’s tapering,” said Steven Dooley, head of research at Forex Capital Trading Pty in Melbourne. “Gold can move by $50 an ounce either way tonight, depending on what the Fed is going to say.”

Gold exchange-traded product holdings added 0.6 metric ton to 1,970.5 tons yesterday, data compiled by Bloomberg show. Assets reached 1,969.9 tons on July 26, the lowest level since May 2010, and are down 25 percent this year.

Bullion for immediate delivery in China has averaged about $18 more than the London price in the second half of July, according to data tracked by Bloomberg. That’s lower than the premium of about $32 from mid-April through July 15. The Shanghai market’s lower premiums will probably cap gains in gold prices, Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. (ANZ), said by phone today.

Silver for immediate delivery rose 1.2 percent to $19.9875 an ounce in London. The metal is heading for the first monthly advance since January. Palladium gained 1.3 percent to $738.88 an ounce. Platinum added 0.5 percent to $1,443.89 an ounce.

Source