Gold rose to a session high above $986 an ounce on Tuesday, as the dollar fell to 5-1/2 month lows versus a basket of currencies and extended losses against the euro after US pending home sales data. The dollar's slide is boosting interest in bullion as a hedge against weakness in the currency, analysts said.
Spot gold hit a high of $986.40 an ounce and was bid at $984.50 at 1455 GMT, against $973.95 an ounce late in New York on Monday. US gold futures for June delivery on the COMEX division of the New York Mercantile Exchange rose $5.60 to $984.20 an ounce. "Earlier today we had a bit of a setback from yesterday's high and that brought some new buyers in, obviously helped by the weaker dollar," said Saxo Bank senior manager Ole Hansen.
"All this talk about systemic risk in the dollar and where you can hedge yourself against that means commodities will be favoured," he said. The dollar extended losses against the euro after US pending home sales beat expectations to rise by 6.7 percent, boosting appetite for riskier assets.
Commerzbank analyst Eugen Weinberg said in the medium term, while weak jewellery demand and a rise in mine output could limit gold's gains, economic developments may support bullion whether they are positive or negative for the wider markets. "If equity markets are dropping, gold is a safe haven," he said. "If they are rising, it is an inflation (hedge)."
Holdings of the world's largest gold and silver exchange traded funds, New York's SPDR Gold Trust and iShares Silver Trust, both rose on Monday. SPDR's holdings were up 15.27 tonnes at a record 1,134.03 tonnes. Buying of gold ETFs, which issue securities backed by physical bullion, as a hedge against future risks such as inflation, has been a major source of demand in recent months.
Market commentators fear government efforts to pump extra liquidity into the financial system could cause a sharp rise in inflation once an economic recovery takes hold. Among other precious metals, silver was bid at $15.93 an ounce against $15.59, after touching a nine-month high of $15.94 an ounce on Monday.
Holdings of the iShares Silver Trust rose 260.36 tonnes on Monday. Platinum was at $1,233 an ounce against $1,208.50, while palladium was at $246 against $238. Both were awaiting fresh direction from the release of US car sales data for May later in the session.
"Given the recent rise in other economic indicators in the United States, many might expect this figure to surprise on the upside," said Standard Bank in a note. "However, with the recent filing of Chapter 11 protection by Chrysler and GM, sales of US carmakers could have been much lower in April. We advise caution ahead of this data, as upside might be limited, while downside could be exposed."
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