Gold rose more than 1 percent on Thursday as equity markets extended losses on concerns over the outlook for US carmaker General Motors, with all the major Wall Street indexes falling more than 2 percent. The dollar pared gains against the euro after the European Central Bank cut interest rates by 50 basis points as expected earlier in the day.
ECB president Jean-Claude Trichet said inflation would remain below target this year and next. Spot gold was at $913.45/914.65 an ounce at 1608 GMT from $906.90 late in New York on Wednesday. US gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose $8.30 to $915.00 an ounce. "Looking at the equity markets, we are a little weaker, which may help gold today," BNP Paribas analyst Michael Widmer said.
"We are seeing support emerging after the sharp price falls of the past few weeks." US stocks and European equity markets weakened after GM said there was substantial doubt about its ability to continue as a going concern. The ECB cut its benchmark interest rate by 50 basis points as expected, to 1.5 percent. The cut is its fifth since October. The Bank of England cut its rates by 50 basis points to a historic low of 0.5 percent, and said it would buy assets worth 75 billion pounds to help the UK economy.
"Todays cut in interest rates by the Bank of England (and) its decision to increase money supply in the banking system... will remind investors of the spectre of future inflation and its eroding effect on wealth," Marcus Grubb, head of investment at the World Gold Council, said. Holdings of the largest ETF, New Yorks SPDR Gold Trust, remain at the level they hit last Thursday. Its holdings have risen only 5 tonnes in the last fortnight, compared with 205 tonnes in the first six weeks of 2009.
On the supply side, dealers in Asia and the Middle East report surging inflows of scrap as holders take advantage of high prices. Turkey imported no gold last month as domestic supply met needs, and Indian scrap selling is also picking up. "With scrap sales continuing to be seen and risk appetite improving the metal will remain vulnerable to further pockets of liquidation," James Moore, analyst at TheBullionDesk.com, said. Fresh buying in India has also been lacklustre as high prices discourage purchases.
Gold has been in a consolidation phase as investors consider the outlook for other markets. The fear that drove the metal above $1,000 an ounce in February has been easing, analysts say. "While we have seen safe-haven buying as the key driver in the last few weeks, that is clearly dropping out of the system, which has allowed gold to come back (down)," Standard Chartered analyst Daniel Smith said.
Among other precious metals, spot silver tracked gold higher to $12.98/13.04 an ounce from $12.90, while spot palladium was at $194/199 an ounce from $196. Platinum prices inched higher after firming more than 1 percent on Wednesday on hopes China would ramp up plans to stimulate the economy. Spot platinum was quoted at $1,056.50/1,061.50 an ounce from $1,046.
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