Tokyo - Gold prices rose on Wednesday, hovering just above $1 000 per ounce but below the highs marked the previous day, as investors sold the dollar to buy riskier assets such as stocks and commodities.
Gold surged past $1 000 per ounce on Tuesday on pent-up technical momentum and dollar weakness, but market watchers were mixed on whether the yellow metal could stay above that level.
Traders said Tuesday's rally was likely a result of massive stop orders being hit and triggering a wave of short-covering as well as fund buying, with little sight of physical demand, exposing the market to the risk of a correction to the downside.
They said the dollar remains the key factor determining the gold market's direction, and if the US currency continues to be pressured by investors selling the currency to buy other riskier assets, bullion could extend gains.
"The next two days will be crucial in seeing if gold prices can keep $1 000 or not," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. "We need to see how the dollar moves, as people are using the dollar's weakness as an excuse to buy gold."
As investors grow more optimistic that the worst of the global economic downturn is over and are now trying to estimate the timing of a clear recovery, gold is favoured as a place to park money, he said.
"With central banks pumping money, there's a lot of money going around and people are looking to see how to make profits with the money" and seeing gold as one such opportunity, he said.
Spot gold rose as much as 0.8% to $1 002.95 before slipping to $1 000.80 per ounce as of 03:00 GMT, compared to New York's notional close of $995.20. Spot gold rose as high as $1 007.45 per ounce on Tuesday, its highest since March 2008.
US gold futures for December delivery edged up as much as 0.5% to $1 005 per ounce, compared with $999.80 per ounce on the Comex division of the New York Mercantile Exchange. On Tuesday, gold futures rose to $1 009.70, their highest since February.
Traders said if gold can keep above $1 000 this week it may pave the way for a test of the record highs hit in March 2008.
"After topping the record highs of last year, then it will depend on whether funds will keep buying," Leung said.
Barrick Gold, the world's top gold miner, said on Tuesday it will issue $3bn in stock to eliminate all of its fixed-price gold hedges and part of its floating hedges.
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"In the bear market, (hedging) saved a lot of people, but in the bull market it just added supply to the market," John Ing, president of Toronto investment dealer Maison Placements, said of the move.
Physical demand shows no sign of picking up, however. India's gold demand was likely to fall more with world prices at $1 000 an ounce, the president of the Bombay Bullion Association said on Tuesday.
There were also no new investment inflows into the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, which said its holdings stood steady at 1 077.63 tons as of September 8.
The dollar remained pressured on Wednesday, after sinking the previous day to its lowest level against the euro this year when traders sold the US currency amid a rosy global outlook.
In other metals, silver was at $16.54, hovering near a 13-month high hit on Tuesday.
- Reuters