Gold rises on weaker dollar but investors cautious

LONDON - Gold rose on Tuesday on a weaker dollar and firm oil prices, and analysts said the metal was looking for a reason to break up through its recent trading range and towards record highs.

By (Reuters)

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Published: Tue 22 Apr 2008, 5:46 PM

Last updated: Sun 5 Apr 2015, 11:42 AM

But investors were cautious after gold failed to hold above $950 an ounce. A recent sell-off also lowered market sentiment.

Spot gold rose as high as $921.50 an ounce and was quoted at $918.90/919.90 at 1010 GMT, against $913.80/914.60 late in New York on Monday.

"A weaker dollar is something that did push gold prices up, but apart from that we have relatively small price movements," said Michael Widmer, analyst at Lehman Brothers.

"The market is a little bit uncertain as to where gold is going. We are trading in a very tight range and it's hard to make any consistent trend. Gold at the moment just bounces around," he said.

The dollar slipped against the euro to hover near record lows, with investors awaiting U.S. housing data at 1400 GMT for clearer direction.

A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand.

The U.S. currency also came under pressure due to Hawkish rhetoric from European Central Bank policymakers. Governing Council member Yves Mersch said the ECB has to ask itself each month whether a rate rise was needed to control inflation.

Mersch's comments came a day after fellow Governing Council member Klaus Liebscher said there was no reason for pessimism on euro zone growth, suggesting the ECB will keep interest rates at a six-year high of 4.0 percent for a while.

The market expects the Federal Reserve to lower rates further from the current 2.25 percent at a policy meeting on April 29-30.

A cut in U.S. rates tends to weaken the dollar and often helps the precious metals market.

Gold-oil correlation

Analysts said gold's correlation with oil prices had weakened in the past days.

"Gold seems to have partly de-linked from crude oil in the sense that the gains in crude oil aren't fully getting reflected into the metal," said Pradeep Unni, metals analyst at Vision Commodities.

"Gold is reacting slow and seems to be consolidating above key support levels before proceeding ahead," he added.

The metal is seen as a hedge against oil-led inflation.

Prices jumped to a three-week high of $952.60 on April 17 before profit taking kicked in and dragged down prices to as low as $904.35 the following day. It has lost more than 10 percent in value since hitting a lifetime high of $1,030.80 on March 17.

Gold had gained on speculative buying spurred by record high oil prices and expectations of further interest rate cuts in the United States, which has reduced the dollar's appeal.

In other metals, platinum fell 2 percent to a one-week low at $1,965 an ounce, as profit taking persisted since a spike to a one-month high last week.

The metal was last quoted at $1,986.50/2006.50 an ounce, against $2,005/2,015 in New York late on Monday and a record high of $2,290 on March 4.

Silver rose to $17.52/17.57 from $17.39/17.44 an ounce, while palladium was up $1.50 at $451.50/459.50.

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