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Gold edged down on Friday as the dollar rebounded against the euro, prompting profit taking in the precious metal after its rally to a three-week high earlier in the session. But prices are firmly underpinned by interest in the metal as a haven from inflation and broad dollar weakness in the wake of the US Federal Reserves move towards quantitative easing, which increases money supply.
"The past two days worth of upside puts us back in bullish territory," said Alan Plaugmann, head of futures and options at Saxo Bank. "There is some resistance at $958.50. A sustained break of that level, and we could see some more upside." Spot gold was at $952.90 an ounce at 2:56 pm EDT (1856 GMT), down 0.6 percent from its last quote $958.60 late on Thursday. Earlier it hit a peak of $966.70 an ounce, its highest level since February 25.
US gold futures for April delivery settled down $2.60 at $956.20 an ounce on the COMEX division of the New York Mercantile Exchange. Prices have risen sharply since the Fed announced plans on Wednesday to buy $300 billion in longer-dated Treasuries, flooding the market with dollars. The move prompted a sharp drop in the US currency and an increase in inflation fears.
"When you look at the gold market, there is a huge dynamic in place, which is an increasing loathing of currencies," said Nick Moore, an analyst at RBS Global Banking & Markets. "The only true currency, which is gold, is the beneficiary of that." "If central banks around the world are keen to avoid deflation, then by definition they must have inflation, and that plays straight into golds hands," he added.
Gold has benefited in recent days from a sharply weaker dollar, boosting interest in the metal as an alternative asset. The dollar is heading for its biggest weekly fall in 24 years, although worries over the eurozone economy have pushed it higher on the day versus the single currency. Investor interest in gold remains firm. The leading bullion exchange-traded fund, the SPDR Gold Trust, said a 15.28 tonne inflow on Thursday had lifted its holdings to a record.
Buying of gold by ETFs, which back the securities they issue with physical stocks of bullion, has formed a major plank of demand in recent months. SPDR alone has added 323 tonnes of gold to its reserves so far this year, against 17 tonnes a year ago. Demand from ETFs is helping to mop up some of the excess supply in the market left over from a drop-off in jewellery buying.
Jewellers in key markets such as India say the metals sharp price rise has hit sales hard. It has also led to a surge in supply of scrap gold as consumers sell old or outdated jewellery to raise cash. Among other precious metals, platinum rose to a near six-month high of $1,127.50 an ounce, boosted by dollar weakness and strength in the gold price.
The metal, chiefly an industrial commodity, may also benefit from a shift in analysts attention from a strongly recessionary outlook in the wake of the Fed statement on Wednesday. Spot platinum was at $1,112.00 an ounce, down 0.9 percent from its previous close of $1,122.50, while spot palladium was at $205.50 an ounce, up 1 percent from its late Thursday New York quote $203.50. Silver was at $13.76 an ounce, up 1.4 percent from its Thursday finish of $13.57, tracking gold.

Copyright Reuters, 2009

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