Gold gained momentum after starting the second session of this week, extending the gains recorded in the past session, where the metal is excessively held by investors as a hedge against uncertainty, supported by the optimism seen in the market, which sent the U.S. dollar south, easing the pressures forced on other currencies, metals and commodities to trade higher today.
Gold appreciated today after starting the session supported by the upbeat GDP figures from China, where the nation grew 8.9% over yearly basis compared with the previous of 9.1%, beating the median estimates of 8.7% growth.
Gold as expected yesterday was able to collect momentum and gained sharply; however, the gains are expected to continue today ahead of the EFSF bond auction; especially when the U.S. dollar is weak.
Gold added 1.11% or $18.22 per ounce so far to currently trade around $1662.02 per ounce, after the opening of $1643.80 per ounce. The metal set the highest at $1662.78 and the lowest at $1641.97 per ounce.
Moreover, investors hold more gold as a hedge against uncertainty ahead of the several bond sales today, where markets are tracking the performance of the euro-area nations in obtaining funds, where investors are still concentrating on the ability of euro zone nations to access the capital market, after the downgrades seen on Friday and Monday.
The focus will be however on the European Financial Stability Facility (European Rescue Fund), which is to auction bonds today in order to raise bailout funds to aid European indebted nations; however, after Standard and Poor's rating agency downgraded the credit rating of the rescue fund yesterday by one notch, investors doubt now the ability of the rescue fund to access capital market and raise cheap funds.
The U.S. rating agency warned previously that downgrading any triple A rating among the euro area nations could lead to cuts in the ranking of the European rescue fund, as the guarantees provided by those triple-A nations will worth less now and in result the firepower of the rescue fund will be weaker.
By
M.Zohaib Gadit
Forex Trading Consultant
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