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Gold rises as dollar retreats from 7-week high

London, May 17, 2011

Gold rose on Tuesday as the dollar eased from a seven-week high against the euro, relieving downward pressure on prices, while lingering concerns over euro zone debt supported demand for the metal as a haven from risk.

Spot gold was bid at $1,494.69 an ounce at 0944 GMT, against $1,489.20 late in New York on Monday. US gold futures for June delivery rose $3.50 an ounce to $1,494.10.

The dollar eased 0.3 per cent against the euro on Tuesday, although lingering concerns over the euro zone periphery kept traders cautious towards the single currency.

Gold is sensitive to movements in the dollar, as strength in the US unit curbs the metal's appeal as an alternative asset, and also makes dollar-priced commodities more expensive for holders of other currencies.

"Gold is very, very rangebound, following the euro/dollar," said Standard Bank analyst Walter de Wet.

"We have been seeing consistent physical buying in Asia in general, and very little scrap coming to the market. That physical buying is supporting gold to some extent."

The metal's rally to record highs above $1,575 an ounce earlier this month was helped by dollar weakness. However, it has since retreated as the US currency bounced from lows.

The metal has also come under pressure from signs investor confidence in its ability to rise significantly further may have waned as prices rose to previously unseen highs this year.

Filings with the US financial regulator showed on Monday that billionaire financier George Soros dumped almost his entire $800 million stake in bullion in the first quarter. Famed gold bull John Paulson held his ground, but Soros was joined in the retreat by several other big names.

ETFs under pressure

Gold holdings in exchange-traded funds monitored by Reuters fell for a tenth consecutive trading day on Monday, bringing the net decline over this period to over 1.14 million ounces. They are down 1.62 per cent year to date.

Holdings of the world's largest silver-backed exchange-traded fund, New York's iShares Silver Trust, fell another 51 tonnes on Monday. The fund has seen outflows of 570 tonnes since its correction from record highs began in earnest in late April.

Investors are likely to be wary of silver after the metal plummeted in early May after climbing sharply earlier in the year, analysts said.

"Prices... lost over 30 per cent in five days, following successive increases in margin requirements and a drop in investment demand," said Barclays Capital in a note.

"Given that the key driver of prices remains investment demand, they are likely to remain volatile until they find support from physical demand, which we expect to materialise around the low-30s."

"Prices have not, however, had a chance to test where their floor lies, given their sharp ascent without pause," it added.

Silver was bid at $34.08 an ounce against $33.56. Among other precious metals, platinum was at $1,767.49 an ounce against $1,751.20, while palladium was at $717 against $707.83.

Platinum Week in London entered its second day, after the launch of refiner Johnson Matthey's keenly awaited report on the platinum group metals' market fundamentals on Monday.

"Overall JM were positive in their 2011 crystal ball gazing, but this also came with a dose of cautiousness," said UBS in a note. "They estimate that the 2010 status quo - of a sizeable deficit for palladium and a platinum market close to balanced - will be retained." – Reuters




Tags: Gold | London | Dollar | futures | Euro zone |

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