Gold ticks higher as dollar, stocks dip
London, May 29, 2013
Gold rose toward $1,400 an ounce on Wednesday, taking a cue from broad dollar losses and falling stock markets with residual support from Chinese physical buying.
But the root of weakness in wider markets - improved U.S. data suggesting the Federal Reserve might taper its monetary stimulus programme - was also seen as a catalyst to ultimately take bullion prices lower.
Persistent outflows from gold-backed funds (EFTs) were expected to heap more pressure on prices after spectacular falls in April that saw gold hit a two-year low.
Spot gold was up 0.8 percent to $1,392.50 an ounce by 1123 GMT, after falling as low as $1,373.14 on Tuesday when equities were initially lifted by strong U.S. economic data.
"It's a little bit surprising that gold has not been reacting more to the stream of improving U.S. data and hints from Fed communication that tapering could start sooner rather than later - gold should be more vulnerable to that," Christin Tuxen, analyst at Danske Bank, said.
"We still think gold is in bubble territory despite the April sell-off. The rise in U.S. bond yields will be a key factor going forwards," she added.
In bond markets, U.S. 10 and 30-year Treasury yields extended their recent rise on expectations the Fed would start thinking about paring stimulus. European stocks reversed Tuesday's gains, while the dollar was down half a percent versus major currencies.
As gold has no interest rate, the rise in returns from U.S. bonds and other markets is seen as a negative signal.
For now, lower prices of the precious metal are luring physical buyers across Asia, with dealers facing a tough time organising supplies to meet demand.
"We can see some Shanghai futures buying interest pushing the market higher," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.
Gold futures in Shanghai are about $25 more than spot gold, indicating that demand was strong in China, the world's No. 2 consumer after India.
Physical demand has picked up in Asia since gold's biggest daily plunge in 30 years last month. Premiums for gold bars hit a record high in Asia last week.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 1,012.25 tonnes on Tuesday, their lowest since February 2009.
U.S. gold gained $12.60 to $1,391.50. Silver firmed with gold, while platinum was flat and palladium slipped 1.3 percent. – Reuters