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Gold up but set for worst May in 30 years

Gold rose above $1,565 an ounce on Thursday as soft US first-quarter growth and weekly jobless claims data pressured the dollar, but this month’s sharp drop in the euro kept the metal on track for its worst May performance in 30 years.

Concerns over Spain’s banking system, a surge in Italian borrowing costs and Greek elections that may determine whether it stays in the euro zone have sent investors fleeing to the safety of the dollar this month.

As well as being caught in the broader market sell-off, gold is particularly sensitive to gains in the dollar, which can dent its appeal as an alternative asset.

Spot gold was up 0.4 percent at $1,567.56 an ounce at 1332 GMT, while U.S. gold futures for August delivery firmed $3.00 an ounce to $1,568.70.

The precious metal is down nearly 6 percent so far this month, its biggest May loss since a near 10 percent fall in 1982. The metal is also set to post a fourth consecutive monthly loss for the first time since January 2000.

“Gold went straight down with the other commodities and equities because of high risk aversion. But in theory, that should actually be an argument for rising gold prices,” Commerzbank analyst Daniel Briesemann said.

“The very firm U.S. dollar is keeping gold in check for the moment,” he said. “But once we see a reversal there, which could happen at any time, we’ll probably see much higher gold prices.”

Expectations Ireland would vote to support Europe’s fiscal pact helped lift the euro from a near two-year low against the dollar on Thursday, taking some downward pressure off gold. The single currency remains vulnerable, however.

The euro is set for its biggest monthly fall in eight months. Expectations that Spain may eventually need outside help to keep its banks afloat kept its government bond yields close to euro-era highs.

While the possibility of a fresh round of monetary easing in the United States and demand for alternatives to the beleaguered euro could lift gold, confidence in the metal remains weak.

“If we had momentum upwards, there are still plenty of people who are bullish and who would buy into that, but at the moment, you have pressure from a strong dollar, or perhaps more accurately a weak euro, and people are just a little bit wary,” Mitsui Precious Metals analyst David Jollie said.

“That doesn’t alter the fact that there are plenty of bulls out there. They are waiting for a trigger to send the price higher, and the question is, what’s that trigger?” he added. “It could be quantitative easing; it could be a short period of euro stability; it could be the Greek elections.”

Strategic view

European stocks are also set for their worst monthly loss since August despite steadying on Thursday. Rather than acting as a safe haven, as it did for much of 2011, gold has traded more in line with other commodities of late.

“Investors don’t have the same strategic approach to gold as before,” UBS said in a note. “Instead of taking a multi-week or multi-month view, much of the exposure to gold has been on an intra-day bias of late. The market is too highly correlated with risk for many participants’ liking.”

Gold demand from its traditional leading consumers in India has been light this year as the weak rupee lifts its cost for local buyers. However, central banks have been keen to buy gold in a bid to diversify forex reserves.

Russia, Mexico and the Philippines have all recently added to their gold reserves, and the Turkish Central Bank said on Thursday it may gradually raise the upper limit of lira required reserves that can be held in gold to 30 percent from 20 percent.

Silver was little changed at $27.90 an ounce, spot platinum was up 0.6 percent at $1,403.99 an ounce, while spot palladium was up 0.1 percent at $603.47 an ounce.

The gold/platinum ratio, which measures the number of platinum ounces needed to buy an ounce of gold, rose to a 4-1/2 month high this week at 1.12, as the white metal, which is much more exposed to the economic cycle than gold, languished.

Platinum slipped below $1,400 an ounce for the first time since mid January on Wednesday. Support for the metal has eroded as demand from carmakers, the main consumers of platinum, declined, particularly in the platinum-heavy European market.