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Gold retreats from record as markets recover

London, August 22, 2011

Gold prices retreated from early record highs near $1,900 an ounce on Monday, as a rebound in stock markets from last week's lows gathered pace, denting interest in so-called safe haven assets like German bunds and bullion.

Although they could not hold their early gains, prices remain elevated as economic concerns fuelled interest in the precious metal as a haven from risk, and on talk that weak US growth could spark a further round of monetary easing.

Spot gold was up 0.2 per cent at $1,862.44 an ounce at 1214 GMT, having earlier risen as high as $1,894.10, building on its strongest one-week rise since Feb. 2009. It is one of this year's best-performing assets, now up 31 per cent.

Investors have flocked to the metal as a haven from the euro zone debt crisis, weakness in the US economy, and volatility in the currency markets.

However, analysts are worried that August's near 15-per cent rally has been overdone.

'People talk about gold as an insurance premium, but right now it's a really high insurance premium to pay,' said Bayram Dincer, an analyst at LGT Capital Management.

Gold has benefited from the ultra-loose US monetary policy of recent years, with successive rounds of quantitative easing - which translates to printing money - undermining the dollar and keeping real interest rates low.

Speculation that persistent weakness in the US economy could lead to fresh stimulatory measures, such as a third round of QE, is continuing to support the precious metal. 

'There has been a heavy round of speculation that the Fed could be pushed (into another round of) quantitative easing sooner than thought, as there haven't been any signals of a possible economic recovery,' said Pradeep Unni, senior analyst at Richcomm Global Services in Dubai.

Talk of intervention in the currency markets by the central banks of Japan and Switzerland also helped gold as it curbed the appeal of the yen and Swiss franc.

'With gold being the only safe haven which cannot be intervened (in), investors are left with very less choice other than jumping into the chase, despite being late,' said Unni.

On Friday, Federal Reserve President Ben Bernanke will give a much anticipated speech at a symposium at Jackson Hole, Wyoming, which will be closely watched for any signs of Fed policy direction.

At the same meeting a year ago, Bernanke announced a $600 billion bond-buying programme that sparked a rally in gold.

Bernanke on the radar

'Growing speculation that Bernanke will hint at further easing in his Jackson Hole speech is prompting investors to buy gold here,' said UBS in a note.

'But should Bernanke put a damper on QE3 expectations, the yellow metal could well experience the correction that potential investors have been impatiently awaiting.'

Gold remains a bellwether of sentiment across the financial markets. It hit record highs as world stocks, the euro and oil prices slid, with concerns about a global economic downturn prompting investors to sell risky assets.

An uptick in stocks as European trading got underway helped those assets recover, however, while pulling a number of so-called safe-havens - German bonds and gold - from their early highs.

Interest in gold-backed exchange-traded funds recovered last week, with holdings of the largest, New York's SPDR Gold Trust, recording its biggest one-week inflow since mid-July last week, of just over 30 tonnes.

Meanwhile, data on Friday showed money managers scaled back bullish bets in gold futures and options for a second week as gold's 2 per cent rise prompted some investors to liquidate positions.   

Platinum meanwhile rose 0.7 per cent to $1,884.49 an ounce, having earlier hit its highest since July 2008 at $1,895 an ounce. It is, unusually, trading near parity with gold, with the yellow metal the chief recipient of safe-haven flows.

Elsewhere, silver was up 0.5 per cent at $43.06 an ounce, while spot palladium was up 1.5 per cent at $755.72 an ounce.-Reuters




Tags: Gold | Federal Reserve | markets | ease | Record high | recover | Bernanke |

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