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Gold trapped in range; dollar seen supporting

Gold XAU hovered in a $5 band, reaching a high of $624.60 an ounce and falling as low as $620.20. It was at $623.90/625.20 by 1011 GMT, against $622.25/622.75 in the US market late on Wednesday when it traded in a range of about $10.

“We expect the market to remain overall positive, with the euro seeing a good push after the German Ifo business climate index came out stronger than expected,” said Alexander Zumpfe, a trader at Heraeus Metallhandels-Gesellschaft mbH.

“Some, though limited, buying was seen in early European trade in both gold and silver,” he said.

The euro jumped half a US cent and reversed earlier losses against the yen after the German data. A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand.

“We expect gold ... to be torn between weak dollar and declining energy prices,” Dresdner Kleinwort said in a note.

Dealers said uncertainty surrounding Iran’s row with the West over its nuclear programme might underpin gold, but thin trading during the summer holidays could exaggerate movements.

The United States said on Wednesday that Iran’s request for talks fell short of the UN Security Council’s demand for it to halt its nuclear programme. But Washington did not reject Tehran’s response outright and said it would review it.

Gold is seen as a safe haven asset in uncertain times.

But the metal’s gains were seen limited because of a drop in oil that eased inflation concerns.

Oil slipped further below $72 a barrel, extending the previous day’s two percent slide started by surprising increase in US gasoline stocks.

Negative technical picture

Charts also painted a negative picture.

“The consistent failure of gold to conquer its 100-day moving average does not bode well for the metal technically, with a dangerous possibility of extending its short term weak sentiment towards $620,” Standard Bank said.

The average stood at $631.60 an ounce on Thursday.

The physical sector was slow, with jewellers and investors waiting for the price to go below $620, said dealers. Premiums for gold bars were unchanged at zero to the spot London price in Singapore GOLD/ASIA1.

China’s gold jewellery demand in the second quarter of 2006 fell 2 percent to 54.5 tonnes from the same period last year as high prices curbed purchases, Albert Cheng, managing director, Far East, for the World Gold Council, said. [ID:nSP310858]

In other precious metals, palladium hit a 11-week high of $344/348, from $342/348 in New York, while platinum XPT rose $1 to $1,227/1,231. Silver XAG was quoted at $12.52/12.62 an ounce, versus $12.47/12.49.