RTRS: Gold holds near $1,000/oz as dollar pares gains
By Jan Harvey
LONDON (Reuters) - Gold held just below $1,000 an ounce on Tuesday as the metal consolidated after its run up to 18-month highs late last week, supported by expectations of fresh dollar weakness and rising inflation.
The metal briefly slipped toward $990 an ounce as the dollar index climbed after data showed U.S. retail sales grew more than expected in August, but recovered as the currency pared gains.
Spot gold touched a low of $991.90, but was bid at $998.30 an ounce at 1451 GMT against $998.65 late on Monday.
Standard Bank analyst Walter de We Wet said gold was sensitive to the currency markets but that brief periods of strength in the dollar did not detract from an overall trend toward a softer U.S. currency.
"We expect the general trend to be toward more dollar weakness, but we have seen so much weakness over the last three weeks that a small correction cannot be ruled out," he said.
The dollar index, which measures the currency's performance against a basket of six major currencies, pared gains after climbing in response to the retail sales numbers, which boosted hopes a recovery may be on the way.
Dollar strength curbs interest in bullion as an alternative asset and makes it more expensive for non-U.S. investors.
With the market needing fresh impetus for a push higher, both the currency and physical markets are being closely eyed.
"We are now entering a period when gold is usually stronger on a seasonal basis," said Peter Fertig, a consultant at Germany's Quantitative Commodity Research.
"Typically the dollar is weak against the euro in the last quarter, so seasonal factors are still arguing that this is just a consolidation and that gold is likely to move further upwards toward all-time highs."
CORRECTION EYED
In an update to its 2009 Gold Report, metals consultancy GFMS said late on Monday that gold prices are likely to correct after their recent run higher, but could rebound as high as $1,100 an ounce in the next six months.
"The market has been driven up very much by short term speculation," said GFMS chairman Philip Klapwijk. "We've seen net long positions on the COMEX reach record levels on the 8th of this month and position length has only grown since then."
"On the other hand, I think the dollar is looking a little bit oversold," he said. "I think we are going to see a fairly significant correction take place in the gold price in the short term."
Gold bugs were cheered by a 1.221-tonne rise in holdings of the largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, after five sessions of stability.
