LONDON (Thomson Financial) - Gold rose on increased demand from India, as
higher oil prices stoked inflation jitters and as the dollar pulled back after
rallying last week.
Bargain hunting after gold lost 4 percent last week also sparked buying.
Volumes were light, however, as the UK and Japanese markets observed a
public holiday.
"Due to the bank holiday in the United Kingdom, gold might be in for a more
quiet trading session today," said Dresdner Kleinwort analyst Peter Fertig. "The
U.S. economic data (this week) is expected to come in lower...which might be
supportive for gold. However, the U.S. figures are unlikely to spark a new wave
of rate cut speculation and thus, any positive impulse should be rather
limited," he added.
The precious metal fell heavily last week and is over $100 lower than its
March record of $1,032.50 per ounce as the dollar has staged an impressive
rebound since late April. Sentiment towards gold remains weak on expectations
for further dollar strength.
"With last week's busy data release schedule behind us, precious metals
should look to consolidate at much lower levels this week," said Standard Bank
analyst Walter De Wet. "Although there has been a few decent data prints out of
the U.S. recently, one cannot call this trend a recovery yet. U.S. consumers
remain under pressure while capital spending, led by the housing slump, is still
declining. Nevertheless, the current environment does favour U.S. dollar
strength, if only because the Fed is expected to have ceased cutting interest
rates for this year."
At 1:53 p.m., spot gold was trading at $866.00 per ounce against $856.70 in
late New York trade on Friday. On Friday last week, gold hit $845.90, the lowest
price since Jan. 2.
Gold's four-month low last week came after U.S. employment data came in
better than expected, boosting the dollar amid hopes that the world's biggest
economy could be turning a corner.
Gold moves in the opposite direction to the dollar as it is seen as an
alternative asset. The precious metal trades in line with oil prices as it is
bought as a hedge against rising inflation.
Today, the euro was higher against the dollar in quiet trading as players
looked to this week's interest rate decisions from the European Central Bank and
the Bank of England. The ECB is widely predicted to keep its benchmark rate
unchanged at 4 percent as it continues to battle inflation. The ECB has kept its
rate unchanged even as its U.S. counterpart has slashed its benchmark rates by a
total 325 basis points since September.
"We are more and more convinced that very real and very long term damage has
been done to the gold market, and that buying is still to be avoided," said
Dennis Gartman, editor of The Gartman Letter.
Demand amid lower prices is returning, however, from jewellery manufacturers
who view the current price levels as cheap.
"What we have this morning is a bounce, a technical bounce, led we suspect
by some buying of gold by Indians who see gold now as cheap and who have a
propensity to buy gold for the Akshaya Tritiya holiday there," said Gartman.
In other precious metals, platinum rose to $1,908 an ounce against $1,895,
while palladium was trading flat at $415.
Silver traded at $16.68 an ounce from $16.40.
anealla.safdar@thomsonreuters.com
as/vlb
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