Gold steady near $930 ahead of ECB, BoE interest rate decisions

Thomson Financial
Thursday, April 10, 2008

Gold consolidated around the $930 mark as yesterday's rally ran out of steam ahead of key central bank interest rate decisions on Thursday.

Prices jumped by over $30 on Wednesday after oil prices rallied to a new all-time record of $112.21 in New York, sparking inflation concerns which encouraged investors to buy gold as a safe store of wealth.

Ongoing weakness in the dollar, which has slipped to around $1.58 against the euro, has also spurred gold higher as investors look for alternatives to the battered U.S. currency.

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But with the European Central Bank and the Bank of England due to announce interest rate decisions later today, traders are holding fire as they wait to see the impact on currency markets.

Analysts at Dresdner Kleinwort said that movements in foreign exchange rates could be positive for gold. The ECB is expected to keep rates on hold while the BoE is widely seen as implementing a small 25 basis point cut. With expectations for further large rate cuts in the United States, the dollar could remain on the back foot.

At 10.32 a.m., spot gold was trading at $934.20 an ounce against $933.40 in late New York trades on Wednesday.

Stark warnings about the prospects for global growth from the International Monetary Fund have also supported safe haven flows into gold. The IMF downgraded its forecast for U.S. growth by 1 percent to just 0.5 percent yesterday, whilst also cutting its growth outlook for the euro zone and Japan due to the ongoing economic turmoil.

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