Gold dips on dollar, US consumer data

LONDON - Gold pared losses in Europe on Tuesday as a report showed US consumer confidence rose slightly in October, while the dollar was broadly firm.

By (Reuters)

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Published: Tue 26 Oct 2010, 10:38 PM

Last updated: Mon 6 Apr 2015, 11:45 AM

Although US consumer confidence rose, it remained near historically low levels as concerns about the labour market persisted, according to a private sector report released on Tuesday.

“There was consumer confidence data ... it failed to weaken the dollar,” said analyst Eugen Weinberg of Commerzbank. “It is maybe helping a little bit as well — otherwise gold is vulnerable to further profit taking.”

“At current levels it is a bit over bought,” he added.

Investors are awaiting clues from US on the prospect of further monetary easing in the United States.

The Federal Reserve will discuss at a meeting in Washington next week whether to extend its quantitative easing policy to accelerate growth. This could have significant implications for the dollar and inflation, and consequently gold.

Spot gold was bid at $1,335.17 an ounce at 1542 GMT, against $1,338.00 late in New York on Monday. US gold futures for December delivery eased $3.70 an ounce to $1,335.20.

Prices hit a record $1,387.10 an ounce earlier this month as the dollar slid amid expectations the Fed would vote in favour of QE at its upcoming policy meeting, but retreated as investors worried the prospect had become too heavily priced in.

“At the moment this (QE) is the most important factor,” said Weinberg. “By now, it should have been priced in to a greater extent. At the moment the market is buying the rumour and I wouldn’t be surprised if it sells the fact when it comes.”

The U.S. dollar gained against a basket of currencies with investors wary of betting against it because of uncertainty over the extent of quantitative easing measures the Fed may take.

Gold typically falls as the dollar rises and vice versa, with strength in the US unit curbing gold’s appeal as an alternative asset and making dollar-priced commodities more expensive for holders of other currencies.

Currency markets are looking ahead to key U.S. data later this week, including a report on third-quarter gross domestic product growth due on Friday.

Physical demand emerges

Gold’s recent price dip has attracted some physical interest back to the market in key gold-buying centres like India, the world’s biggest bullion consumer. Buyers there are stocking up ahead of festivals, dealers said.

“The market is certainly getting cautious, but every retreat is seen as an opportunity even though large scale buying is absent,” said VTB Capital analyst Andrey Kryuchenkov in a note.

Among other precious metals, palladium was at $613.38 an ounce against $606.20, not far from the nine-year high at $617.50 an ounce it hit on Monday.

The ratio of platinum to palladium — the number of ounces of palladium needed to buy an ounce of platinum — fell to its lowest since mid-2004 in that session as palladium outpaced platinum’s gains.

“While investor and speculator activity is in part responsible for palladium’s recent gains, the metal’s supply and demand fundamentals remain supportive, and are likely to tighten over the next 12 months,” UBS said in a note on Tuesday.

“Our palladium-bullish thesis is grounded in rising emerging market auto sales, tightening emission legislation in China, little immediate threat from electric vehicles, low mine supply growth, and limited Russian stockpile sales,” it added.

“This last factor will most likely be the primary determinant of whether palladium can rise to $1,000 over the medium term, but for now remains a wild card.”

Platinum was at $1,695.25 an ounce versus $1,692.05, and silver at $23.60 an ounce against $23.50.

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