Gold extends gains as Ireland aid talk lifts euro

Spot gold was bid at $1,360.00 an ounce at 1042 GMT, against $1,352.65 late in New York on Thursday. U.S. gold futures for December delivery rose $6.70 to $1,359.70.

Gold rose by the most in two weeks on Thursday, breaking a four-day losing streak, as hopes for a plan first emerged. Expectations that the dollar will weaken further against the euro are set to continue lifting the metal, analysts said.

“With the Fed continuing to vouch for QE2, dollar weakness will continue to persist, and along with that, a possible solution to the Irish debt crisis has resulted in a firmer euro,” said Richcomm Global Services analyst Pradeep Unni.

“These two factors will continue to provide a bullish bias to the metal in the near term. The only fear lingering around is a potential rake hike from China, which, though (it) is almost discounted, fails to dissipate completely.

China said it would raise banks’ reserve requirements by 50 basis points from Nov. 29 on Friday. Commodity prices tumbled earlier this week on fears the government would lift rates after inflation hit a 25-month high in October.

However, the news did not have a significant impact on the gold market. “The market now is well attuned to the fact that the Chinese need to tighten monetary policy in various ways,” said Credit Suisse analyst Tom Kendall.

The euro continued its recovery on Friday, building on the previous day’s near 1 percent gains versus the dollar, amid talk of a deal between Dublin, its European partners and the IMF over an aid package that may be worth tens of billions of euros.

Dublin said discussions would run into next week, and Finance Minister Brian Lenihan told parliament it was not yet at the point of requesting a loan.

Physical buyers hunt bargains

On the physical side of the market, Asian buyers hunted bargains after prices dropped from the record high levels hit last week, with demand from top consumer India picking up due to the ongoing wedding season.

“We saw buying interest below $1,350 in the region (Asia), as people are betting on price rise to $1,500 next year,” said one Hong Kong-based dealer. Spot gold prices hit a record $1,424.10 an ounce last week.

But demand for gold-backed exchange-traded funds continued to be soft, with holdings of the world’s largest gold ETF, the SPDR Gold Trust, declining 4.6 tonnes to a one-month low of 1,286.299 tonnes on Thursday.

Elsewhere silver was bid at $27.17 an ounce against $26.92, while platinum was at $1,657.50 an ounce against $1,662 and palladium was at $699 against $693.72.

Prominent commodities investor and hedge fund manager Dwight Anderson said on Thursday that platinum output has possibly peaked as the precious metal gets harder to mine, and prices are likely to rise to record highs.

However, Standard Chartered said in a report that it favoured palladium over platinum. “We believe there is more upside for platinum prices in the year ahead, but the uptrend is unlikely to be smooth,” it said.

“We still believe that palladium is likely to outperform platinum in the year ahead,” it added. “A strong auto sector in China and the U.S. should keep prices on an upward track.”