Gold edged higher in Europe on Tuesday, flirting with $440.00 an ounce in technically-driven trade, although sentiment was tempered by the implications of current major speculative longs.
"Gold is having trouble holding above $440 at the moment and it looks more technically driven than fundamental," Ross Norman of the TheBullionDesk.com, said
"However the positive sentiment remains and a convincing break above $440 may add a little fire to bellies of the bulls."
But traders said there was the potential for a sharp sell-off, if US futures longs liquidate - non-commercial net longs on COMEX stand at a record 157,607 lots.
Standard Bank London said in a report that while continued buying could be interpreted as supportive of the market, it could also potentially mean a sharp move to the downside when the investment funds have a change of heart.
"It (gold) is OK here - around $440.00 - but it looks as if it will be tougher to get up to $445.00," a European trader said.
Spot gold rose to $438.90/439.60 an ounce by 1433 GMT, up from New York's late Monday quote of $437.70/438.50.
The euro was $1.2210, flat from late New York levels.
Analyst John Reade of UBS said that with COMEX speculators now as long as they can get and with the failure of the euro to break sustainable out of the top end of its recent range the next short-term move in gold is lower.
"...We have lowered our one month forecast to $430 an ounce, accordingly, although we hold our three month forecast of $445," Reade said in a daily report.
"In the longer term we expect that gold will move higher over the next 18 months on further weakening of the dollar," Reade added.
Gold hit its highest in eight months at $449.30 a troy ounce just over a week ago, then slid by over 2.5 percent as the dollar bounced.
SOUTH AFRICA OUTPUT FALLS:
South African gold production fell 18 percent to 72 tonnes (2.31 million ounces) during the second quarter of 2005 compared to the same period last year, the country's Chamber of Mines said.
Production was 2.4 percent down versus the first quarter of the year. "Gold doesn't tend to move on this type of fundamental news, although it should support sentiment," Norman said.
In other precious metals, silver was consolidating a break above the $7.00 an ounce level, looking to conclusively break above the moving averages (MA) between $7.04 and $7.07.
Spot was at $7.01/7.04 against New York's $7.04/7.07.
"On the upside, resistance is provided by yet more moving averages above between $7.08 and $7.11," Julia Hamblett of Dresdner Kleinwort Wasserstein said.
Platinum was eyeing the 10-day MA around $897.00, and was indicated at $891.00/895.00, up from $889.00/892.00.
Palladium was largely motionless, settling at $181.00/184.00, versus $182.00/186.00.
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