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Gold inches higher, palladium at 2-week high

LONDON - Gold drifted in Europe on Tuesday, supported by gains in crude oil and base metals prices but vulnerable to a sell-off as the dollar held firm.

Spot gold XAU was at $662.90/663.30 an ounce at 0959 GMT, largely flat from $662.00/$663.50 last quoted in New York on Monday.

“It rallied on the back of base metals and oil prices, but its all very lacklustre,” said Simon Weeks, director precious metals at ScotiaMocatta. “Now that the others are coming off a touch, so is gold.”

He expected prices to swing in a $10 range between $655 and $665, but felt they would eventually head lower.

David Holmes, director of precious metals sales at Dresdner Kleinwort, said $665 was fairly critical, a break of which could trigger automatic buy orders to take gold towards $672.

“But I am a little sceptical. We are seeing some producer hedging going through -- some Aussie-dollar denominated trade is being quoted.”

Traders said reports that StreetTRACKS gold shares GLD.N, the world’s largest gold-backed exchanged traded fund (ETF), had dropped a substantial amount of bullion holdings over the past week was another factor weighing on the market.

ETFs allow investors to gain exposure to commodity markets without setting up futures trading accounts or taking physical delivery. Sponsors of such funds buy a matching amount of the commodity from the market to keep in bank vaults.

London metal exchange traded copper futures rose just over one percent, while crude oil steadied above $70 a barrel after hitting a nine-month high the previous day.

The dollar held near a six-week high versus the euro and a three-month peak against the yen on cooling expectations for the Federal Reserve to cut interest rates later in the year.

Palladium jumps

Palladium XPD rose to its highest in nearly two weeks at $373 an ounce and was quoted at $372/$375, up from $368/$373 in New York.

Standard Bank said in a daily note the rise was linked to talk of a physical liquidity squeeze, although traders reported no availability problems for palladium sponge.

“We don’t see any shortage at the moment,” said Wolfgang Wrzesniok-Rossbach, head of marketing and sales at German refiner Heraeus.

But he said the recently launched ETFs could also be taking liquidity out of the market, so the talk might be linked to that.

“But even then, a shortage would only be temporary. There is enough stock in Switzerland to meet the ETF demand, they just have to allocate it and that takes a while.”

Palladium can often be used as a substitute for platinum, which is mainly used as an auto catalyst to clean car exhaust fumes as well as in jewellery.

Spot platinum XPT was at $1,299/$1,302, down from New York levels of $1,310/$1,315 an ounce, while silver XAG gained to $13.06/$13.10 an ounce versus $13.04/$13.08 in New York.