Gold prices drifted on Tuesday, steadying after profit-taking had pushed the metal off a near-one-month high, but traders were looking for further gains. Business was very subdued in Europe with US markets closed again on Tuesday for the Independence Day holiday. Spot gold was at $621.50/622.50 an ounce by 1417 GMT, barely changed from $622.20/623.20 late in London on Monday.
Sentiment in the market was upbeat as gold had held above $600 after spending much of the second half of June stuck in a $550-600 range. "Private clients, who had been rather shocked by the speed of the sell-off, have begun to dip their toes back into the market," John Reade, UBS precious metals analyst, said in his daily report.
Spot gold fell as low as $543 in mid-June, a drop of 25 percent from May's 26-year high. "Apparently the recent correction has not quenched the thirst of the bulls but rather encouraged them to aim for even higher prices in gold." Firmness in other commodity markets also helped gold, with oil futures holding above $73 a barrel.
Traders were waiting to see how New York would react when it re-opened for business on Wednesday as prices were higher than last Friday, when the market was trading around $612. "Overall, I am optimistic that we might see higher prices with sentiment recently turning against the US dollar after last week's (Federal Reserve) less hawkish comments," said Alexander Zumpfe, trader at Germany's Heraeus.
Dealers were also watching currencies, with the euro hitting a four-week high versus the dollar. A potential step-up in central bank purchases of gold in the Middle East and Asia had also supported the market. Calls for China to earn higher returns from its foreign exchange reserves, believed to be invested mainly in low-yielding government bonds, were increasing.
Some analysts remained sceptical about the feasibility of central banks diversifying into assets such as gold due to the relatively small size of the market. "If we assume the central banks of Japan, China and India each raise their gold holding to 10 percent, this would require roughly 7,800 tonnes of gold," Barclays Capital said in a recent quarterly report on commodities.
"Given that this represents almost three years of global mine production, the most plausible way of transacting is through a large off-market transaction." Offsetting that buying potential was news of further sales from Portugal, which sold 15 tonnes of gold in recent months.
Global net official gold sales rose by 40 percent last year to 656 tonnes, the highest on record, according to precious metals consultancy GFMS Ltd. In other precious metals, platinum fell to $1,229/1,234 an ounce from $1,242/1,247. Palladium drifted to $322/327 an ounce from $325/329. Silver was steady at $11.18/11.28 from $11.17/11.25 an ounce.
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