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Gold rebounds; Europe, US debt worry weighs

Singapore, November 22, 2011

Spot gold rebounded on Tuesday, as a decline of more than 2 percent in the previous session attracted some buyers, while worries about debt crises in both the US and the euro zone are expected to keep sentiment fragile.

US lawmakers abandoned their high-profile effort to rein in the country's ballooning debt on Monday, but rating agencies Standard & Poor's and Moody's said there will be no immediate downgrade of the country's credit ratings. 

On the other side of the Atlantic, the debt crisis swept closer to the heart of Europe as Moody's warned about France's credit ratings outlook. 

"Today there has been some buying interest on the physical market, although overall trading is thin," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong. "The strength in dollar is suppressing gold prices, but for the long term, people would still want to keep gold as a safe haven."     

Investors are expected to remain fickle in the short term due to the turmoil in currency and other markets, and the next support level is the 150-day moving average around $1,650 an ounce, traders said.

Buying interest from China emerged in the Shanghai market, with buyers taking advantage of a discount of about $30 in international prices to Shanghai prices.

But this arbitrage buying has eased as the price gap quickly narrowed to below $10. The popular Shanghai gold spot deferred contract traded at 346.20 yuan a gram, or $1,692.9 an ounce.

Spot gold gained half a percent to $1,685.99 an ounce by 0723 GMT, off the four-week low of $1,665.88 hit on Monday.    US gold also rose half a percent to $1,687.40.     

Technical analysis suggested that spot gold could fall further to a range of $1,619-$1,637 per ounce during the day, said Reuters market analyst Wang Tao.

Spot gold has fallen more than $100 over the past week, slumping along with riskier assets, as doubts deepened about the ability of European nations to effectively contain the region's debt crisis.

"We are only seeing tepid buying demand today, as people expect more liquidation on the way with the ongoing sell-off in equities and other markets," said a Singapore-based trader.

Spot silver lost half a percent to $31.47 an ounce, recovering from a one-month low of $30.63 hit in the previous session.

China's trade data revealed that the country's silver imports slumped 26 percent in October from a year earlier. The inflow of silver powder, used in the photovoltaic industry, dropped 20 percent.

 "The (photovoltaic) sector had provided some support to silver prices upon the investment appetite sell-off, but in light of the concern about industrial demand, this is an element that has now softened, thus increasing the importance of investment demand to make up for the fundamental surplus," said Barclays in a research note.  "However, investment demand in silver has also slowed recently, leaving prices more vulnerable to the downside."   - Reuters 




Tags: Gold | bullion | precious metals |

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