Gold poised as correction nears end

[miningmx.com] — GOLD edged higher on Wednesday, rising back above $1,190 an ounce, as fresh demand emerged for the precious metal after its correction from recent record highs.

Chart support above $1,180 an ounce has also helped limit losses in gold, analysts said.

Spot gold was bid at $1,195.25 an ounce at 1447 GMT, against $1,191.50 late in New York on Tuesday. US gold futures for August delivery were up $0.60 to $1,195.70.

“The general feeling is still of insecurity, and given the drop, people might see (gold) as a bargain, probably more on the speculative side than on the long-term investment side,” said Wolfgang Wrzesniok-Rossbach, head of sales at Heraeus.

Gold has fallen some six percent from the record high at $1,264.90 an ounce it hit in late June, which has tempted some buyers back to the market.

In India, the world’s biggest gold consumer, jewellers bought stocks ahead of religious festivals, and other physical buyers in Asia snapped up bullion after prices fell.

On the wider financial markets, the euro fell from seven-week highs against the dollar on concerns about the growth outlook for the global economy and as investors scrutinized details of plans to test the financial health of European banks.

Although the usual inverse link between gold and the dollar weakened earlier this year as both benefited from risk aversion, a stronger US currency usually makes dollar-priced metals more expensive for holders of other currencies.

Elsewhere European shares turned positive as banks pared losses on optimism that results from impending stress tests may not be as bad as feared.

China mulled

Gold earlier slipped to a session low of $1,185.05, its weakest since late May, in earlier trade after China’s State Administration of Foreign Exchange said gold will not become a major component of the central bank’s portfolio.

However, analysts said given the size of China’s currency reserves, it was unsurprising gold would play only a relatively minor role in its portfolio, and that the news was unlikely to detract from central bank interest in gold if prices fell.

“China has $2 trillion in currency reserves, so it is simply not possible for them to invest a major part of this in gold — the gold isn’t there,” said Commerzbank analyst Daniel Briesemann.

“I am convinced they will increase their gold holdings if prices fall further. I don’t expect gold to fall below $1,000, but if that happened…China would step in and buy gold.”

The market also found good technical support above the $1,180 an ounce area, analysts said, with gold’s longer-term uptrend likely to resume once the correction had run its course.