Business : Gold firms as dollar extends losses

Business : Gold firms as dollar extends losses: "Gold firms as dollar extends losses
(Reuters)
23 December 2009
LONDON - Gold rose nearly 1 percent on Wednesday, bouncing off from a seven-week low struck in the previous session as the dollar lost ground and physical demand offered some support to prices.

But with the year-end looming and investors keen to square their positions, bullion could struggle to climb any further, especially with pockets of dollar strength, traders said.

Spot gold was bid at $1,092.20 an ounce at 1553 GMT, against $1,083.55 late in New York on Tuesday, when it tumbled to $1,074.10 an ounce, its lowest since November 3.

“The metal could increasingly get restricted to a narrower range as we proceed towards the year-end,” said Pradeep Unni, senior analyst at Richcomm Global Services.

“Book closing and weak physical demand, combined with the selling pressure building up in charts are restricting fresh investments,” he said. “A year-end price closing in the range of $1,050-1,055 is quite likely.”

The dollar fell further against the euro and yen after data showing U.S. new home sales fell to a seven-month low in November dented optimism about the economy.

Weakness in the U.S. unit boosts gold’s appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.

Afshin Nabavi, head of trading at MKS Finance, said many speculative investors were getting out of the market as the end of the year approached, with thin trade exaggerating price moves. But 2010 could bring a recovery, he added.

“Selling seems to be coming from specs liquidating their positions, and if it hadn’t been for physical demand, the market would have been much, much lower,” he said.

“It is very difficult to have an opinion for the next few days, but I remain positive towards the price of gold in the coming year. Once everyone is back in their seats, we will see prices head back towards where they were earlier this month.”

Spot gold rose to an all-time high of $1,226.10 an ounce at the beginning of December.
Oil firms

Other commodities also held firm, with oil prices holding near $75 a barrel after industry data showed a sharp drawdown in U.S. crude stocks. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation.

If gold declines further it will likely find initial support around $1,060-$1,065, traders said, having shed 11.5 percent since early December’s record high. If this breaks, it could lead to a further correction, analysts said.

The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,132.708 tonnes as of Dec. 22, unchanged from the previous business day.

London’s ETF Securities said holdings of its gold-backed exchange-traded products fell half a percent to 7.778 million ounces on Tuesday from 7.821 million ounces the day before.

India’s spot gold prices fell for a second consecutive session on Wednesday as buyers stayed away expecting prices to fall further, dealers said. India was the world’s biggest bullion consumer last year.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange firmed $6.2 to $1,092.90 an ounce.

Spot silver was bid at $17.12 an ounce against $16.96. Platinum was at $1,405 an ounce against $1,393, while palladium was at $357 against $352.50."