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Gold Steady Ahead of Fed

Simon Constable

Gold prices hovered around the unchanged mark Monday as traders struggled to find direction ahead of the Federal Reserve's meeting and comments on the economy later this week.

April-dated bullion contracts added 40 cents to close at $654.30 an ounce on the Comex division of the New York Mercantile Exchange. The bullion exchange-traded funds that hold the metal also edged higher.

iShares Comex Gold Trust (IAU Quote) and streetTracks Gold Shares(GLD Quote) were both up about 0.2%.

"Investors will be closely watching [Wednesday] to see if the Fed changes its risk assessment on inflation vs. the economy," notes David Rosenberg, an economist at Merrill Lynch in New York.

The Fed will start the first day of a two-day meeting on Tuesday. No change in the fed funds target rate is expected, but if market watchers interpret the central bank's words as more dovish toward the risks of inflation, then the dollar could weaken in anticipation of cuts in short-term interest rates.

That would in turn likely be bullish for gold, which tends to appreciate over time as the U.S. currency falls in value.

One dollar was recently buying 117.56 yen, up from 116.80 yen late Friday. Euros were being traded at $1.3298, down from $1.3312 previously.

Elsewhere, some see too much froth remaining in the futures market to allow a sustained rally in bullion.

"There is still a historically large speculative futures position, which presents an overhang," says Kevin Norrish, a commodities analyst at Barclays Capital in London. "We need to get rid of some of the stale long positions and clear the playing field."

In the precious metals patch, Indonesian prosecutors say they are confident that a court will find Newmont Mining(NEM Quote) guilty of polluting a bay with the toxic heavy metals arsenic and mercury, the AP reported this weekend. A verdict is expected in early April and could lead to a prison term for the head of the local operation.

Elsewhere, silver producer Coeur d'Alene Mines(CDE Quote) said a U.S. court canceled the permits associated with a facility at its Alaska-based Kensington gold mine, sending the shares down 4.6% in recent action.

As for base metals, copper prices gained slightly on the Comex, closing up a penny at $3.02 a pound, despite weakness in Shanghai overnight.

Turning to the miners, Bear Stearns upped its rating on shares of Freeport-McMoRan Copper & Gold(FCX Quote) to outperform from peer perform, and pinned a price target of $80 on the stock.

Separately, Freeport announced it had completed its takeover of Phelps Dodge(PD Quote), creating the world's largest publicly traded copper firm.

Freeport shares were recently lifting 2% at about $62, while those of Phelps were ahead 0.7% at $129.