Gold rallies in Europe

Gold reversed losses and rallied for a third day on Wednesday, driven by investors taking positions ahead of a US Federal Reserve meeting that could yield a downbeat view of the world's largest economy. The Fed's two-day meeting ends on Wednesday and the central bank is widely expected to repeat its commitment to keeping US interest rates low, but without fanning any expectations for a third round of quantitative easing.
Gold was tempered earlier by the Greek government surviving a confidence vote in parliament on Tuesday, which marks the first of three steps it must take to secure emergency lending from the European Union and the IMF. But anticipation of a possibly bearish note from the Fed prompted a flurry of buying that pushed gold in dollars to session highs, gold in Australian dollars to its highest in almost a year and sterling-priced gold to a new record peak.
Spot gold quoted in dollars was last up 0.7 percent at $1,556.89 by 1500 GMT after having fallen earlier by as much as 0.4 percent to a session low of $1,541.10. The market seems to be willing to be rather long than short ahead of the Fed, and obviously combined, if you put in everything in Europe and the still-accommodative policy in the US together, it seems as if the bias must be to the upside to gold," said Standard Bank analyst Walter de Wet. "While we are seeing good physical selling in gold on these rallies, in general still, the buying outweighs the selling in the physical markets," he said.
Gold in sterling hit a record high after minutes from the Bank of England's recent meeting showed some policymakers raised the issue of more quantitative easing to support the flagging British economy. "It's a reminder that central banks can do more. I think with the Fed, some gold investors see a bigger chance of QE3 than maybe the wider market, so perhaps it's the gold investors you have to be looking for rather than the wider market. They're more sensitive to these things," said Mitsubishi analyst Matthew Turner. "The general tone is that QE won't happen," he said.
"The currency aspect is important when there is nothing else going on. The potential for a Greek default and the Fed meeting are more important directly (for gold) than their impact on the currency." Gold in Australian dollars rose by as much as half a percent to a session peak of A$1,467.54 an ounce, its highest since early July last year, while gold in euros was flat on the day at 1,073.02 euros an ounce, off a recent record 1,088.11 euros, while the euro itself was flat against the dollar.
The single European currency took some comfort from the confidence vote in Greece, where government will approve its new austerity package on Wednesday, hopefully avoiding the eurozone's first sovereign debt default. Recent gains in gold were driven by debt problems in Europe, inflation fears in China following strong economic data and worries about a US economic slowdown.
"While the improvement in the Greek political situation is gold-negative, the continued uncertainty beyond June 28 should provide support," said UBS strategist Edel Tully. "Difficult issues pertaining to the exact nature of private-sector involvement remain unresolved and gold will continue to be vulnerable to headline risk in the short-term," she said. Gold's robust rally swept the other precious metals off their session lows and into positive territory. Silver was last up 1.1 percent at $36.68 an ounce. Platinum was up 0.4 percent at $1,750.24 an ounce, while palladium was up 0.9 percent at $770.98.