Upbeat data pushes gold to 1-week high

2011-12-21 07:20

Singappore - Gold rose to a one-week high on Wednesday, extending gains from the previous session as upbeat economic data from the United States and Germany boosted market sentiment and a weaker dollar lent support.

The euro edged higher, riding on a sharp rise in German business sentiment and strong demand for Spanish debt, with investors watching the European Central Bank’s first offer of three-year loans to banks that many hope will help the region’s banks lower their funding costs.

On the chart, spot gold pierced above the 200-day moving average, seen as a key support since 2008 until a week earlier when prices plunged.

“The rebound in gold today is related to the currency market,” said Dick Poon, manager of precious metals at Heraeus in Hong Kong. “But we don’t see much fresh buying from investors as the year end nears.”

Poon said gold could rise towards $1 650 by the end of the year, but the thinning trading volume could lead to great volatility in prices. Spot gold rose as much as 0.8% to a one-week high of $1 627.65 before easing slightly to $1 625.85 an ounce by 03:39 GMT. It rallied 1.3% in the previous session.

US gold gained 0.6% to $1 628. Holdings of SPDR Gold Trust, the world’s biggest gold-backed exchange-traded fund (ETF), remained unchanged for a third consecutive session at $1 279.975 tonnes by December 20.

“What surprised me is holdings of gold ETFs are still holding up despite the recent sell-off, which is a good sign,“ said Dominic Schnider, head of commodity research at UBS Wealth Management.

But gold is unlikely to visit its historical high any time soon as uncertainties around the eurozone debt crisis and global growth have created a liquidity crunch that hurts gold’s sentiment as much as it hits riskier assets.

“Gold is not the asset of choice on a search for liquidity. It gives you comfort against currency risks, inflation, sovereign debt problems, but not liquidity crunch.”

Spot platinum hit a one-week high of $1 441.50 and eased to $1 435.50, up half a percent from the previous close. Spot palladium rose 0.7% to $627.29.

Barclays Capital suggested that in the first quarter investors build length in markets where fundamentals are most supportive, including copper, platinum group metals and gold.

“Across the metals sector and arguably for commodities as a whole, supply constraints look tightest in the PGMs (platinum group metals),” it said in a research note.

It added that the deteriorating output in South Africa and Russian palladium stockpiles that are widely believed to be near exhaustion would trigger a drop in platinum and palladium supply next year.