Precious Metals Overview

Gold futures gained for a second session on Thursday, hitting a three-week high as the euro gained after comments from the European Central Bank calmed investors worried about the currency union’s banking crisis. The most actively traded gold contract, for August delivery, rose $7, or 0.4%, to settle at $1,615.10 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest settlement price since July 3. “Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough,” ECB President Mario Draghi said at a conference in London. The euro advanced against the U.S. dollar after Mr. Draghi’s comments, reaching the highest point since July 10. Gold and the dollar tend to move inversely. Gold had settled at a two-week high on Wednesday, boosted by hopes that the Federal Reserve would ease monetary policy in an effort to prop up flagging U.S. economic growth. Such measures can raise the odds of inflation down the line, lifting demand for gold as a currency hedge. “We’ve got expectations that the Fed is going to do something or at least say something next week, and there’s talk that China is ready” to implement new easing steps, said Frank Lesh, a broker at FuturePath Trading. Adding the chance that the ECB may take new steps in the wake of Mr. Draghi’s comments, Mr. Lesh said that “you have the three central banks of the world’s largest economies maybe going to throw some more money at the problems.” Europe’s banking crisis has been a drag on gold prices this year, with worried investors generally seeking safety in the U.S. dollar at the expense of precious metals. “Gold has shown itself sensitive to monetary policy announcements this year and any indication of further easing would buoy gold prices, we believe,” said James Steel, an analyst with HSBC, in a note. Central banks in Russia and Kazakhstan both made large additions to their gold holdings in June, according to International Monetary Fund data. Russia’s central bank added 216,000 ounces of gold in June, while Kazakhstan bought for a seventh consecutive month, adding 50,000 ounces. Central banks in emerging economies have typically been buyers of gold in the last two years, bulking up their holdings of the precious metal in response to the debt crises in the U.S. and Europe, home to the world’s top two reserve currencies. Jamie Sokalsky, chief executive of top gold producer Barrick Gold Corp., said on Thursday that central bank buying, among other factors, has supported the gold price as mine output appeared to stagnate. “Certainly, the macroeconomic environment” is supportive, he said in an interview with The Wall Street Journal, citing “central banks buying gold, China and India being big purchasers of gold, against the backdrop of a likely flat supply from the mining industry and, perhaps, declining” output.
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