Gold steady after drop on Fed

Gold found support at $1,600 an ounce on Thursday, although it was capped by uncertainty over whether the European Central Bank will take bold action to tackle the region’s debt crisis after the U.S. central bank dashed hopes of any imminent stimulus. The Fed stopped short of offering new monetary easing after a two-day meeting, even as it acknowledged a weakening economy and signalled more strongly that further bond buying could be in store to help shore up the economy. Cash gold fell 0.9 percent on Wednesday, its biggest daily decline in three weeks, at the disappointment from the Fed, and investors have turned to focus on a policy meeting of the European Central Bank (ECB) later in the day. “Investors took profit yesterday after the Fed meeting. If the ECB announces any helpful measures, it will likely pressure the dollar and help the gold,” said Lynette Tan, an analyst at Phillip Futures in Singapore. But after ECB President Mario Draghi vowed last week to go all-out to preserve the euro, market expectations for bold and imminent actions run high and any ECB announcement short of that expectation would greatly dismay the markets, analysts said. Spot gold edged up 0.2 percent to $1,602.08 an ounce by 0631 GMT, after losing 0.9 percent on Wednesday. U.S. gold futures contract for December delivery edged down 0.1 percent to $1,605.60. Technical analysis suggested that spot gold will be neutral above the $1,592 level, said Reuters market analyst Wang Tao. The inverse correlation between the dollar and gold reached the highest level since the beginning of the year. The correlation reading stood at -0.75, while a reading of -1 suggests a perfect inverse correlation whereby one asset rises and the other falls. The dollar index hit a one-week high after the Fed gave few hints of more stimulus, putting pressure on dollar-priced commodities, as they become more expensive for buyers holding other currencies.South Korea central bank buys gold Supporting sentiment for gold, South Korea’s central bank said it bought 16 tonnes of gold in July, boosting the country’s gold holdings by nearly 30 percent to 70.4 tonnes as it aims to diversify its foreign reserves. It was the second time that South Korea has bought gold in less than a year, after Russia said it had added 6.2 tonnes to its gold reserves in June. “Gold is still playing in a range and I don’t see any compelling factor to do it now, but this goes on to reaffirm the faith central banks have in gold and the potential for gold to rise,” said Gnanasekar Thiagarajan, director with Commtrendz Research in Mumbai. But the gold market showed little reaction to the news, as the ECB meeting dominated market focus. “People expect earthquakes from the Europe situation,” said a Singapore-based trader, adding that the poor performance of commodities had burned fund investors, who were now nursing losses on the sidelines. “A lot of people are sidelined and not that inclined to get back in without someone else giving it a kick start.” U.S. auto sales rose a lower-than-expected 9 percent in July as high U.S. unemployment and weak consumer confidence kept would-be buyers on the sidelines, denting sentiment in platinum group metals which are used in producing auto catalysts.