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Gold held below $1,360, dollar caps gains

London, February 14, 2011

Gold was held below $1,360 an ounce in Europe on Monday as the stronger dollar put a lid on last week's gains, though a second consecutive weekly price rise has underpinned investors' confidence in the precious metal.

Spot gold was bid at $1,356.70 an ounce at 1037 GMT, against $1,356.12 late in New York on Friday. US gold futures for April delivery fell $3.40 an ounce to $1,357.00.

Prices remain caught between support near $1,320 an ounce and resistance towards $1,370 as investors wait to see whether the firmer appetite for risk that boosted higher yielding assets at gold's expense at the start of the year will be sustained.

'With gold between $1,320-1,360, we are still seeing pretty good physical demand, and that is supporting gold,' said Standard Bank analyst Walter de Wet.

'From a technical perspective, the 100-day moving average is just above $1,360, and that is providing resistance. It is going to be pretty difficult for gold to break above that level, given what we have with the physical market and technical resistance.'

'(But) ultimately, we still think gold is going to break higher, and target $1,500 towards the third quarter.'

Investors' confidence in the longer-term strength of gold prices was demonstrated last week by a report showing investors were beginning to build up their exposure to US gold futures.

The net non-commercial position in Comex gold futures posted its first weekly rise since early January and the largest weekly rise since early April 2010, the Commodity Futures Trading Commission said in its weekly Commitments of Traders report.

A stronger dollar is limiting gains in gold, however. Dollar strength curbs the metal's appeal as an alternative asset.

The euro hit a three-week low against the unit on reports that Germany's financial watchdog has become involved in a rescue of ailing lender WestLB.

Traders are awaiting a raft of data, including Chinese inflation numbers and a euro zone growth report due on Tuesday, to give fresh direction to the market.

'China's CPI reading for January will be released tomorrow and market chatter currently suggests it will be lower than expected,' said UBS in a note.

'Should CPI disappoint, this could act as a catalyst for gold to trend lower in the short term.'

Investment still soft

Gold buying in India, the world's biggest consumer of the metal, was lacklustre for a third day on Monday as dealers awaited further price falls.

Demand for gold-backed exchange-traded funds also remained soft, with holdings of the world's largest, New York's SPDR Gold Trust, falling by 55 tonnes so far this year.

'Private investors, not only in the US but also in Asia and Europe, clearly have a different point of view on the actual global economic and financial situation than institutional market participants,' said precious metals house Heraeus.

'They are still very much on the buying side, be it due to fear of inflation or worries about distortions in the international currency markets.'

'However this group is not going for exchange traded products like ETFs or certificates but for physical metal directly,' it said. 'Accordingly demand for investment bars, (for example) in Germany, continues to remain robust.'

Among other metals, platinum was at $1,819.84 an ounce against $1,802.50, while palladium was at $818.22 versus $811. Silver was at $30.11 an ounce versus $28.85.

The tightest physical silver supplies in four years tipped the US silver futures market into backwardation last week, making near-term prices more expensive than more distant months.

Market watchers said it had been more than 10 years since silver futures were last in backwardation, a term structure associated with shortage of physical supply. – Reuters




Tags: Gold | London | Dollar | Silver | Comex |

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