[miningmx.com] — Gold prices eased off Monday’s record highs in afternoon trade in Europe, as investors took profits, but analysts said persistent concern over sovereign risk would make any declines short-lived.
China’s decision to relax the yuan’s peg to the U.S. dollar to allow for greater flexibility in its exchange rate dented the U.S. currency and lifted higher-risk assets, which in turn undermined gold.
Spot gold was bid at $1,252.15 an ounce at 1425 GMT, against $1,255.35 late in New York on Friday. U.S. gold futures for August delivery eased $4.50 to $1,254.00.
“As long as doubts persist about the success of resolving the debt crisis in Europe, investors are still trying to protect their investments with gold and that should give gold continued support,” said Commerzbank commodities analyst Daniel Briesemann. “The decline we’ve seen this afternoon should be short-lived.”
Gold prices have risen more than 15 percent this year as rising concerns over sovereign debt levels in Europe and the prospect of further financial market instability has boosted interest in the precious metal as a haven from risk.
Holdings of gold in the world’s largest gold-backed exchange -traded fund, SPDR Gold Trust, hit a record of 1,307.963 tonnes as of June 17, while open interest in COMEX gold futures rose last week to near all-time peaks as investors rushed to snap up bullion.
Gold’s long-running inverse relationship with the dollar eroded as risk aversion has encouraged buying of both assets, but a slide in the U.S. currency on Monday is now adding further impetus to gold’s run higher, analysts said.
“Dollar strength can help gold, and dollar weakness can help gold as well,” said Michael Lewis, head of commodities research at Deutsche Bank.
“Central banks globally do have quite high dollar reserves and the idea that they may now in aggregate be buying gold is an interesting signal of the message that sends on their U.S. dollar holdings, that they are probably overweight.”
The World Gold Council released data that showed global central bank gold reserves rose by 276.3 tonnes in the first quarter of this year to 30,462.8 tonnes, with Saudi Arabia more than doubling its reported holdings.
Gold priced in currencies other than the dollar remained below recent record highs on Monday.
The euro hit its highest levels in about a month versus the dollar on Monday after China’s decision on the yuan.
Global equities rose and safe-haven U.S. Treasuries came under pressure after China’s pledge to give its currency new room to move would ease political tensions with the West and encourage investors to snap up riskier assets.
Other commodities also rallied with copper and zinc prices rising more than 3 percent and oil up more than $1 a barrel to above $78. Analysts are betting that Chinese imports of key commodities may rise.
Strength in industrial metals lifted silver, platinum and palladium. Silver was bid at $19.17 an ounce against $19.10, having earlier hit its highest since May 17 at $19.53.
Platinum was at $1,605.00 an ounce against $1,585.50, having earlier hit its highest since May 20 at $1,606.50 while palladium was at $499.50 against $487.50. Earlier the autocatalyst metal hit a four-week high at $501.
Speculators in New York platinum and palladium futures lifted their net long positions in the metals last week, with open interest in NYMEX palladium futures staging its largest weekly rise since late March.
Both metals may be supported by increased flexibility in the yuan exchange rate, said UBS analyst Edel Tully in a note.
“Platinum and palladium… stand to benefit from becoming cheaper in local terms,” she said. “China is an important consumer of palladium in particular for auto production, so yuan appreciation should boost (platinum group metals) demand.”
