Gold holds above $950, dollar weak

Reuters | Fri, 22 May 2009 11:15
[miningmx.com] -- Gold held near two-month highs above $950 an ounce in Europe on Friday, consolidating after the previous session's near 2 percent rise, as investors bought the metal as a hedge against the weak dollar and financial risk.

Prices edged off the highs reached earlier in the session as some traders cashed in after this week's sharp gains, but remain well positioned for a fresh push higher if dollar weakness persists, analysts said.

Spot gold was bid at $950.40 an ounce at 0842 GMT, against $953.40 an ounce late in New York on Thursday.

"The dollar is threatening to break through the $1.40 level on the euro, and there are concerns about the economic environment," said Calyon analyst Robin Bhar. Both boost buying of bullion, he said.

Asian stocks slipped overnight and the dollar fell to a 2009 low as fears grew that the United States could lose its triple-A rating. Fears over the economic outlook and the health of the financial system are fuelling interest in gold as a haven.

Ratings agency Standard & Poor's cut its outlook on Great Britain to negative from stable on Thursday, while Moody's Investor Services said it was comfortable with its U.S. rating but that it was not guaranteed forever.

Bullion is also technically well-positioned to make further gains, Bhar added, especially if the dollar softens further.

"We have closed for two days above the $935 level, so the technical guys will be saying we now have confirmation of a successful upside break," he said.

"We've seen in the past gold has put in some false starts and never really achieved a clean break-out. If we close at these sorts of levels, it will look really good on the weekly charts, and provide even more upside potential."

Stronger oil prices, which are hovering around their six-month peak, are also supporting gold. Bullion can be bought as a hedge against oil-led inflation, while rising crude prices can also boost interest in commodities as an asset class.

LACKLUSTRE

Investor interest in gold-backed exchange-traded funds remains relatively lacklustre. Holdings of the largest gold-backed ETF, the SPDR Gold Trust, were unchanged for a sixth consecutive session on Thursday.

London's ETF Securities noted an outflow from their Physical Gold ETF. Its holdings declined nearly 69,000 ounces or 2.5 percent on Thursday.

Among other precious metals, platinum was quoted at $1,146 an ounce against $1,148.50 late in New York on Thursday, while palladium was at $231.50 an ounce against $231.

Fellow platinum group metal rhodium dipped $50 to $1,400 an ounce, giving up some of this week's earlier gains.

Spot silver was bid at $14.43 an ounce against $14.51. The metal has tracked gains in gold in recent sessions, and is up around 3.7 percent on the week at present.

"With gold running into profit-taking, there is the risk of deeper correction for silver as the failure to breach the March highs spark technical related selling," said James Moore, an analyst at TheBullionDesk.com, in a note.

"However, we expect the metal to continue to benefit from inflation fears and investor diversification, and think silver is brewing for an upside push of its own, potentially targeting the $16.40 level."