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Stimulus hopes lift gold

Published: 10:52 11 Aug 2012 EDT

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Gold rose this week, aided by expectations of further stimulus action from central banks.

This week’s Chinese data showed that the world’s second largest economy saw growth in industrial output slow to 9.2 percent last month from 9.5 percent in June, while expectations were for an increase.

China also reported that its exports increased only one percent in July – down from the 11.3 percent surge posted in June, adding to concerns that growth in its economy is slowing at a faster pace than expected.

Meanwhile, inflation in the country fell to 1.8 percent in July, hitting the lowest level in 30 months, giving the government more room for stimulus action.

In the US, president of the Federal Reserve Bank of Boston Eric Rosengren, who said he was in favour of unlimited quantitative easing.

Rosengren told CNBC that the economy has been treading water and he didn’t want to have another two quarters go by.

“It's very costly to be treading water at a point where we have 8.3pct unemployment. We need a stronger labor market than what we've been seeing,” the Boston Fed boss said.

It has been speculated that the Fed could launch a third round of quantitative easing in September to boost the sluggish recovery.

More stimulus from the Fed would hit the US dollar - which has an inverse relationship with gold- and boost the yellow metal's appeal as an inflation hedge.

Gold closed at US$1,620/oz on Friday, up US$17 from a week earlier. Silver advanced from US$27.80/oz to US$28.13/oz, while platinum fell from US$1,402/oz to US$1,394/oz.

Randgold Resources (LON:RRS) rose from 5,795 pence to 6,355 pence over the past five days of trading and fellow FTSE 100 constituent Fresnillo (LON:FRES) advanced from 1,464 pence to 1,581 pence.

In the FTSE 250, platinum miner Lonmin (LON:LMI) rallied from 726 pence to 753 pence and African Barrick Gold (LON:ABG) rose from 383 pence to 409.2 pence.

 

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