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Gold bounces after 1pc fall; jewellers buy

Singapore, June 14, 2011

Gold rebounded on Tuesday after posting its biggest one-day loss in a month in the previous session on growing worries about another global economic downturn, but a weaker US dollar and bargain hunting by jewellers offered support.

While signs of a cooling Chinese economy could weigh on industrial metals, dealers expect no change in China's appetite for bullion. Investors were also awaiting a trail of US data later in the day which could set the tone for commodities.

Gold added $4.40 to $1,519.13 an ounce by 0319 GMT after falling on Monday to its weakest since late May. Gold, which hit a record around $1,575 in early May, has been buoyed by uncertainties about the outlook for the US economy and worries about euro zone debt.

'I would say gold is still bullish. The main factors are still going back to the monetary policy of the US and the longer-term weakness of the dollar. That could boost gold prices and help it head towards a new record later this year,' said a dealer in Singapore.

'The demand for gold in China is going to come pretty robust this year. Despite the slowing economic growth, I think the Chinese will continue to consume quite a bit of gold,' he said.

China's consumer price inflation accelerated to a 34-month high of 5.5 per cent in the year to May from 5.3 per cent in April, fueling fears of further tightening and adding to risks for global growth.

But Chinese demand for gold bars and coins as private investments could push bullion imports above 400 tonnes in 2011, triggered by concerns about inflation and poor returns in the stocks and property sectors.

The US will release key data on Tuesday, including retail and auto sales, and producer prices, which the market will scour for clues to the magnitude and duration of the slowdown in the world's largest economy.

US economic growth could remain soft for some time but monetary policy may not be able to address the problem, Richmond Federal Reserve Bank President Jeffrey Lacker said.

Gold's recent fall spurred activity in the physical sector.

'We're seeing a little bit of physical buying. It's from jewellery makers,' said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

'I think we can say gold will try the lower end first, and then maybe $1,480 should be a good support. Starting in August or September, there maybe room to go up again.'

The euro fell to a record low against the Swiss franc as investors sought safety on worries about a possible Greek debt default, while concerns about the faltering US economy and slowing Chinese growth kept prices across markets under pressure.

On Monday, Standard & Poor's slashed Greece's rating to CCC, making the highly-indebted country its lowest-rated in the world. S&P said European policymakers look increasingly likely to impose a restructuring of Greece's debt.

'Now that the  euro zone has its problems, the US has its budget deficit, I think Swiss franc is one of the safe havens that investors would look towards. But I would not see Swiss franc as competing with gold per se,' said the dealer in Singapore. 'It would be competing with other currencies.'

Silver , which usually tracks gold, rose 30 cents to $34.99 an ounce, below a record at $49.51 an ounce hit in April.

Holdings of the largest silver-backed exchange-traded-fund (ETF), New York's iShares Silver Trust, fell 2.1 per cent from Friday to Monday, while the largest gold-backed ETF, New York's SPDR Gold Trust saw its holdings dip 0.08 per cent during the same period.

In the energy market, oil rebounded after China said industrial production grew at a faster-than-expected pace in May, easing concerns over a global economic slowdown and soothing worries that Europe's debt crisis would dent energy demand. – Reuters




Tags: China | Gold | Singapore | Silver | Jewellers |

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