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Gold edges higher as dollar eases

London, October 21, 2010

Gold steadied above $1,340 an ounce on Thursday, as waning investor interest was offset by a pull-back in the dollar ahead of a key G20 meeting and after currency remarks from US Treasury Secretary Tim Geithner.

Holdings of gold in the world's largest exchange-traded fund, the SPDR Gold Trust, fell for a fourth consecutive occassion, indicating a decline in investment appetite.

Meanwhile, speculation swirled in financial markets over a possible bargain by the Group of 20 countries to rebalance the global economy.

Finance and central bank chiefs meet on Friday to discuss a common path on managing currency, trade and economic imbalances ahead of a meeting in Seoul next month.

Spot gold hit a high of $1,349.05 an ounce before slipping to $1,344.80 by 0924 GMT, down from $1,343.50 at New York's notional close. Prices rose by nearly 1 per cent on Wednesday following reports the Federal Reserve would buy bonds to inject money into the US economy.

US gold futures for December delivery were up $1.3 an ounce at $1,345.60.

'Despite the renewed dollar weakness, we've been struggling to regain traction to the upside. There have been a lot of investors going into gold already and probably at this juncture, would probably be a little hesitant, because now everyone is focusing on currency moves and the outcome of what could happen at the weekend,' said Ole Hansen, a senior manager at Saxo Bank.

'The trend is still firmly pointing toward higher prices and that really is the main message still.'

SPDR said its holdings eased to 1,299.177 tonnes by Oct 20 from 1,300.089 tonnes on Oct 19. The holdings hit a record at 1,320.436 tonnes on June 29.

Dollar tilts lower

The dollar pared gains versus the euro as investors decided comments by Geithner that major currencies were roughly in alignment may not have warranted an earlier rally in the US currency.

Gold benefits from dollar weakness, firstly as it becomes cheaper to non-US buyers, but also profits from any investor nervousness stemming from declines in the greenback.

The strength in the dollar in the past week has stripped more than 3 per cent off the gold price since it hit a record high of around $1,387 last week.

Gold also shed nearly 3 per cent on Tuesday in its largest one-day fall since July following China's surprise announcement of an interest rate rise.

China's growth ebbed in the third quarter and inflation edged just a touch higher, showing the economy was strong but far from overheating. It also suggested an interest rate rise this week may be enough for now.

'I am still predicting $1,400 by the end of the year,' said Mark Pervan, senior commodities analyst at ANZ in Melbourne, adding that physical demand from India and China was expected to support bullion.

'The recent tightening announcement by China has taken the market a bit by surprise. But (it) doesn't derail the weak US dollar story and probably strong Chinese demand story.'     The festival season in top consumer India is under way, with Dhanteras -- the day jewellers register the year's highest gold sales -- slated for early next month.

'The market is getting a little more (cautious) and even though the long run sentiment is still bullish, investors will prefer to take a breather here, while the downside remains well supported in any case,' said VTB Capital analyst Andrey Kryuchenkov.

Among the other precious metals, silver was down about 0.3 per cent at $23.82 an ounce, while platinum rose 0.1 per cent to $1,680 an ounce and palladium drew strength from the rally in the base metal complex and rose nearly 2 per cent to $595.99 an ounce. – Reuters




Tags: Gold | London | Dollar | G20 | Geithner | SPDR |

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