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Gold climbs ahead of Fed Rate Decision, AngloGold Ashanti, IAM Gold and Centamin Egypt rise

Last updated: 19:51 16 Dec 2009 GMT, First published: 20:51 16 Dec 2009 GMT

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Gold stabilised somewhat this morning after last week’s correction from record highs, and ahead of this afternoon’s Federal Reserve interest rate decision.


America’s central bank is due to announce its rate decision later today, however, with low seasonal volumes any change in either policy or sentiment may spark a period of volatility in equity, Forex and commodity markets.


Gold has been edging higher through the morning in Europe as investors anticipate that Fed Chairman Ben Bernanke will maintain historically low US interest rates, following recent comments that the US recovery remains fragile


The devaluation of the US dollar, which has helped spur the recent gold rally, has been a direct result of the unprecedented low interest rates. Government funded stimulus programs and ‘quantitative easing’ (printing money), has also pressured the dollar significantly.


Gold has risen from around $750/ounce twelve months ago driven primarily by growing fears over inflation and specifically the decline of the US Dollar. The greenback's decline has increased the relative appeal of physical assets, particularly gold, to protect against further devaluation.


The gold price and the US Dollar have a directly inverse relationship; typically a fall in the dollar will prompt an increase in value for gold and vice-versa. There are two primary factors that govern this relationship. Firstly like all major commodities gold is primarily priced in dollars, therefore a change in relative value of the dollar directly impacts on the commodities relative value, particularly for investors outside the US.


The second and perhaps the most crucial factor relates to international reserves. All nations, through central banks, store a proportion of their wealth in a reserve, which exists to protect the relative value of the economy's wealth. The majority of international reserves are held in US Dollars, when the dollar is weak, international reserves devalue, subsequently central banks increase their demand for alternative assets such as gold.


On Wall Street gold stocks were generally following the yellow metal higher, AngloGold Ashanti (NYSE: AU) and the worlds largest gold producer Barrick Gold (NYSE: ABX) led the majors, each rising around 2.6%. Meanwhile South African based Randgold Resources (NYSE: GOLD) and GoldCorp Inc (NYSE: GG) both advanced more than 2%.


Yamana Gold (NYSE: AUY), GoldFields (NYSE: GFI) and Newmont Mining Corp (NYSE: NEM) all rose more than 1.5%, while Kinross Gold (NYSE: KGC) and Australian producer Lihir Gold (Nasdaq: LIHR) gained 1.25%. On the international order book, fellow Australian tier-one producer Polyus Gold (IOB: PLZL.IL) crept 0.5% higher.

Elsewhere on the New York Stock exchange emerging producers IAM Gold (NYSE: IAG) and Agnico Eagle (NYSE: AEM) were fairly strong also rising 3% and 2% respectively.

On the American Stock Exchange Nevsun Resources (AMEX: NSU) led the sector as it advanced more than 4%, New Gold (AMEX: NGD) followed rising nearly 3%. Eldorado Gold Corp (AMEX: EGO) and Rubicon Minerals (AMEX: RBY) were also rising, adding more than 2% to Tuesday’s close. Elsewhere Minefinders (AMEX: MFN), Keegan Resources (AMEX: KGN) and Exeter Resource Corp (AMEX: XRA) all edged 1% higher.

In Toronto Centamin Egypt (TSX: CEE) was one of the strongest performing gold equities, as the emerging producer climbed more than 4.5%.

Kent Exploration (TSX-V: KEX) and Timmins Gold Corp (TSX-V: TMM) were also rising, rising 3% each, while Hawthorne Gold Corp (TSX-V: HGC) traded 1.5% higher. Kootenay (TSX: KTN), Lydian Gold (TSX: LYD) and Bravo Venture Group (TSX-V: BVG) were unchanged on the day.

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