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Gold steadies near highs, security worries support

LONDON - Gold steadied on Tuesday to trade just below a two-week high and was likely to gather strength on a further drop in the dollar and security worries, traders said.

A breach of important technical levels was also expected to accelerate the upward movement, but trading was likely to be subdued ahead of the Independence Day holiday on Wednesday, when US financial markets will be closed.

‘The geopolitical environment is supporting prices at the moment and it could potentially spark prices higher,’ said Suki Cooper, precious metals analyst at Barclays Capital.

‘In the very short term, there is a slight bias on the upside, but prices would probably dip in the lower-demand months of July and August and pick up in September.’

Spot gold was quoted at $657.10/657.70 an ounce as of 1000 GMT, versus $656.70/$658.20 in New York late on Monday, when it rose as high as $658.80, the highest since June 20.

A possible Al Qaeda plot to detonate car bombs in London and Scotland spurred flight-to-safety buying of gold on Monday, which, coupled with a lower dollar, had helped lift bullion.

Police were questioning eight people on Tuesday -- at least three of whom are doctors -- in connection with the plot.

‘Monday’s price action gave more support to our view that the recent low of $640 should mark a pretty solid base in the near term,’ said John Reade, head of metals strategy at UBS Investment Bank.

‘Gold can trade higher from here and will probably do so if the dollar continues to weaken and forex markets continue to add to risk, mostly carry and short dollar positions. The move should accelerate if $665 ... were to break.’

The dollar hit a 26-year low versus the sterling and hovered near a record low against the euro, with investors reluctant to buy the greenback ahead of the US Independence Day holiday and with concerns about the US financial sector leading investors to shun the currency.

Concerns about the subprime mortgage market, intensified by troubles at two Bear Stearns managed hedge funds, have dented risk appetite. Recent soft reports on consumer price inflation, personal income and spending also weighed on the dollar.

‘Given the current backdrop of falling dollar and rising oil, coupled with the recent terror attacks in the UK, it does look as if gold may make further gains in the coming sessions,’ TheBullionDesk.com said in a daily note.

In other precious metals, platinum rose to a one-week high of $1,288/1,292 an ounce from $1,278/1,282 in New York, while silver eased to $12.59/12.64 from $12.63/12.68 an ounce. Palladium was down $1 at $365/368.