India's gold buyers welcome lower prices
Gold (GC-FT1,124.503.600.32%) edged lower in Europe on Thursday as concerns over the fiscal health of euro zone economies pressured the single currency versus the U.S. dollar, curbing interest in gold as an alternative to the U.S. unit.
Prices remained well off the lows they hit in the last session as some investors were tempted back into the market by the metal's recent price fall.
Spot gold was bid at $1,125.75 (U.S.) an ounce at 1031 GMT, against $1,128.80 late in New York on Wednesday. It dropped as low as $1,116.80 that day, its weakest since Nov. 13.
Analysts say the upward trend in gold, which took the metal to record highs at $1,226.10 an ounce a week ago, is unlikely to be resumed before year-end.
“Gold has had a good clean-out, technical indicators are back to neutral, so on that basis it could be building a base to move back up,” said Saxo Bank senior manager Ole Hansen.
“That is what people are waiting for, but there is no urgency. We have to see where this scaling-back will take us.”
The metal is likely to move higher in 2010, however, he said. “There is still a lot of uncertainty next year, which will support the precious metals,” he said. “Gold will definitely have a decent upside and we will see new highs in the new year.”
Gold's performance will be dependent on further losses in the dollar. Weakness in the U.S. unit boosts gold's appeal as an alternative asset, and makes dollar-priced commodities cheaper for holders of other currencies.
The euro dipped against the dollar on Thursday on concerns over the poor fiscal health of Greece and Spain highlighted by rating agencies in recent days.
Standard & Poor's cut Spain's credit outlook to negative on Wednesday after Fitch had downgraded Greece's credit rating, sparking concerns about sovereign debt.
Correction Seen
Technical analysts, who study charts of past price movements to determine the future direction of trade, say gold prices could see further correction before any further push higher.
“Gold remains vulnerable to further weakness for a push to $1,100/$1,070 zone before renewed basing potential,” said Barclays Capital in a note.
“It is a similar story for silver (SI-FT17.380.201.16%) following the break of... November 27 low support at 18.01/17.67, pointing to continued losses towards $16.09/$15.74 September/October congestion and potentially beyond.”
Silver was bid at $17.35 an ounce against $17.38.
Among other commodities, oil steadied below $71 a barrel on Thursday after sliding more than 2 per cent to a two-month low a day earlier. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.
Elsewhere, the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust (GLD-N110.84-0.11-0.10%) , said its holdings were unchanged on Wednesday after an outflow of nearly 14 tonnes a day before, their biggest drop since July.
In India, the world's biggest bullion consumer last year, dealers say buyers are being tempted back into the market after gold's $100 an ounce retreat from record highs.
“People are buying on dips,” said a dealer at a Mumbai bank.
High prices have weighed heavily on demand for gold this year in key jewellery buying centres like India and the Middle East. Global jewellery demand fell by more than a fifth in the first half of 2009, according to the World Gold Council.
In supply news, South Africa, a major gold producer, said its output of the precious metal fell 5.8 per cent year-on-year in October.
Meanwhile platinum (PL-FT1,416.006.800.48%) was at $1,412 an ounce against $1,416.50, while palladium (PA-FT366.000.450.12%) was at $361 against $362.
