New York 07/07/2011 - Gold in New York moved marginally lower Thursday following decisions by Europe and China to raise interest rates; however, the downside is seen as limited as the market has already shifted its focus back to the lingering debt problems in the US and eurozone.
Gold futures for August delivery on the Comex division of the New York Mercantile Exchange were recently down $1.70, or 0.1 percent, at $1,527.50 per pound. Trade has ranged from $1,522.20 to $1,534.90.
Earlier today, the European Central Bank, as widely expected, raised its key interest rate Thursday to 1.5 percent, up from the 1.25 percent rate set in April.
Additionally, China's central bank overnight upped its benchmark deposit and lending rates by 25 basis points - its third rate increase this year.
“The ECB hike has already been fully priced in and additional Chinese tightening surprises no one. That's why gold is just treading water this morning,” a US-based find manager said.
Traditionally, interest rate hikes would lead to softer gold prices as the yellow-metal is often bought as an hedge against inflation.
“[But] the market right now is more interested in the [US] budget talks and Europe's spiralling debt problems,” he added.
Earlier this week, Moody's Investors Service lowered Portuguese debt to junk status, which increased demand for safe-haven assets, like gold.
“The negative effect of a hike in Chinese interest rates proved to be short-lived. It was not long before the focus returned to concerns over the eurozone debt crisis,” Standard Bank said in a note.
In the US, Republicans and Democrats continue to bicker over the Federal budget and have yet to agree to raise the country's $14.3 trillion debt ceiling. The country's debt limit will be exceeded by August 2, unless Congress takes action.
“The US debt-ceiling debate is shaking the markets' confidence. President Obama is struggling to reach a compromise with Republicans who insist on spending cuts before they will agree to an increase in the US government’s borrowing limit,” Standard Bank added.
In other US data, ADP reported that private sector payrolls rose by 157,000 last month, which easily beat estimates of a 67,000 gain and May's tally of 38,000.
In gold specific news, Goldman Sachs raised its three-month gold forecast to $1,565 from $1,480; its six-month forecast to $1,635 from $1,565; and its 12-month forecast to $1,730 from $1,690.
“We expect gold prices to continue to climb in 2011 given the current low level of US real interest rates,” Goldman said. “However, with our US economics team forecasting strong US economic growth into 2012, we expect US real interest rates to begin to rise next year, likely causing gold prices to peak in 2012.”
Elsewhere, Comex silver for September delivery was up 44.9 cents at $36.365 per ounce. Trade has ranged from $35.70 to $36.50.
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