Gold hit a six-week high on Wednesday as the dollar tumbled to a record low against the euro, but dealers trod cautiously ahead of the summer holiday period. Analysts were not yet convinced the rally was sustainable as recent spikes had prompted investors to take profits.
"We are not really picking up a clear trend in gold at the moment," said David Holmes, director of precious metals sales at Dresdner Kleinwort Investment Bank. "The market is generally long with a positive outlook, but the trouble is that there is no new money flowing into the market to help us make the next leg of the move on the upside."
Spot gold rose as high as $672.90 an ounce and was quoted at $671.90/672.70 by 1444 GMT, against $664.60/665.40 in New York late on Tuesday. "It's partly related to the fact that we are entering into the summer period. Gold would find it easier to move higher in the fourth quarter of this year, but in the interim it's going to be relatively range-bound, with good interest to buy gold on dips and profit-taking is going to limit moves on the upside," Holmes added.
The dollar edged down after Federal Reserve Chairman Ben Bernanke said housing sector woes would likely get worse before improving. The euro traded at $1.3800, up from $1.3780 where it was shortly prior to the comments.
Pressured by news of problems at two Bear Stearns hedge funds that bet heavily on subprime loans, the dollar set record lows against the euro and a 26-year trough versus sterling. Gold often moves inversely to the dollar. "Gold has done pretty well over the past month or so, coming up from low $640s, but there is not a huge amount of support between here and back down to those $640 levels," said Tom Kendall, precious metals analyst at Mitsubishi Corporation.
Some dealers said the recent inflow into exchange-traded funds (ETFs) suggested investors were slowly regaining confidence in gold. Gold held by StreetTRACKS fund, the world's largest gold ETF based on physical bullion, rose to 487.92 tonnes from 469.91 tonnes from a week ago. "I think there has been a little bit of improvement in investor interest in gold. I certainly think the weakening in the US dollar has been a factor in that," said David Moore, a commodity strategist at the Commonwealth Bank of Australia.
In other metals, platinum rose to a two-month high of $1,319/1,323 from $1,307/1,311 an ounce in New York, while palladium rose to $367/371 an ounce from $365/369. Silver rose to a one-month high of $13.20 an ounce and was last quoted at $13.17/13.21, versus $12.91/12.96.
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