Gold firmed on Tuesday as it tracked a rebound in oil prices but was likely to trade in ranges ahead of the release of key US economic data this week. Analysts said that after a consolidation phase, gold would move higher on the back of an expected weakness in the dollar.
"We are still bullish and see $725-$750 an ounce into the next year but for the time being, we are pretty comfortable with the current $640-$660 level," said Michael Lewis, global head of commodities research at Deutsche Bank.
Spot gold made a couple of attempts to break above $651 an ounce but failed each time and spent most of the day at around $650. Prices were at $650.30/651.30 an ounce by 1520 GMT, against $647.00/647.75 late in New York on Monday.
Traders took note of an announcement by Germany's Bundesbank that it planned now substantive gold sales in the current year of the central bank gold agreement and has made no firm decision for next year.
The German central bank is entitled to sell 120 tonnes a year under the agreement but consistently has passed its option on to other participants. Gold rallied to a one-week high of $658 on bargain hunting on Friday, having fallen to a six-week low of $632.30 on March. 6, when tumbling global stocks and a rising yen forced risk-averse investors to sell gold to cover losses elsewhere.
Many dealers remain wary about chasing prices up due to the large amount of outstanding long positions still in place despite the sell-off. "After the recent correction the metal is consolidating around current levels looking for the next direction," said Alexander Zumpfe, trader at Germany's Heraeus.
"There are still significant longs out there and this is keeping it vulnerable. Given where the euro/usd is this afternoon, the metal should actually be trading higher and this implies market players remain cautious despite supporting factors like the greenback," he added.
Lewis said the metal was likely to strengthen in the second half of the year and early 2008, helped by an expected decline in the dollar against the euro. A fund manager at Blackrock Inc said late on Monday that analysts were too bearish in their forecasts for commodity prices, which in turn under valued mining shares, particularly those of base metal producers.
Dealers await consumer price data later in the week, with any weaker-than-expected figures seen stoking expectations for possible Federal Reserve interest rate cuts later in the year. The dollar fell against major currencies as soft US retail sales data raised concerns about how quickly the economy was slowing.
A decline in the dollar makes gold cheaper for holders of other currencies and boosts demand. The metal is also seen as a hedge against oil-led inflation. Oil rose around a dollar on Tuesday after the International Energy Agency said the world would need extra Opec oil in coming months. US crude was last trading 78 cents higher at $59.68 a barrel. In other precious metals, silver edged down to $12.89/12.94 an ounce from $12.97/13.02, while platinum rose to $1,217/1,222 from $1,205/1,210. Palladium fell to $346/351 from $349/354 an ounce.
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