Japan's next prime minister, Shinzo Abe, buoyed by a landslide election victory, piled pressure on the central bank on Monday as it prepared for a policy meeting, saying voters had overwhelmingly backed his call for aggressive monetary stimulus. "The increased likelihood of more aggressive monetary stimulus by the Bank of Japan is maybe fuelling the rise in gold prices in the last hour or two," Christin Tuxen, an analyst with Danske Bank, said.
"This news highlights low interest rates for a prolonged period." Monetary stimulus spurs investment in gold as a hedge against inflationary fears. Gold briefly rose to a two-week high above $1,720 an ounce last week after the US Federal Reserve pledged to buy $45 billion a month in longer-term Treasuries, a potentially inflationary move that was expected to support gold. It swiftly retraced those gains, however, in line with other financial markets as investors prepared for year-end.
"Technically the chart is looking more bearish," Tom Kendall, head of precious metals research at Credit Suisse, said. "The path of least resistance is now to the downside." Prices were drifting towards the low end of recent ranges towards year-end, he said. Prices last week broke below their 100-day moving average, which had been a strong support level at $1,703 an ounce. Gold is now trading below a number of key moving averages, suggesting the trend in the metal is weak.
Credit Suisse's Kendall said gold was getting little support from speculation over the cliff at present. "If the markets were very concerned about the lack of agreement to date or the potential impact of the fiscal cliff in the first quarter of 2013, you would expect to see gold higher than it is, especially considering the relative weakness of the dollar against the euro," he said.
Gold demand in India, currently neck and neck with China as the world's biggest buyer of the metal, was soft as buyers awaited a key rate decision from the Reserve Bank of India (RBI) for its impact on the rupee. "(The) market is very much in a range like the rupee, so the physical market is dull. They are all waiting for the RBI meeting tomorrow," one dealer with a private bullion importing bank in Mumbai said. Indian gold futures are likely to fall over the fortnight, extending losses to their lowest since early November, as investors resort to year-end profit-taking, shaving off part of the double digit gains made in 2012 so far.
Hedge funds and money managers raised their bullish bets on US gold futures and options to 129,865 contracts in the week ended December 11, up from a more than three-month low of 126,073 lots in the previous week. But they cut net length in silver to 34,862 lots, the lowest since late November.
"Gold's post-FOMC price action has been muddied by other factors, such as (profit/loss) considerations, as year-end nears and uncertainty regarding the US fiscal cliff lingers," UBS said in a note. "Nevertheless, it cannot be ignored that, at least in the near term, investor confidence has taken a hit." Among other metals, spot silver was up 0.25 percent at $32.23 after earlier falling to a one-month low of $32.08, just below its 100-day moving average at $32.14. Spot palladium lost 0.50 percent to $696.50, after rising for seven weeks straight, its longest winning streak in more than two years. Platinum was down 0.64 percent at $1,603.74 per ounce.