Gold steadies in London

Gold eased on Wednesday, reversing a brief move higher after the European Central Bank fed cash-hungry commercial banks over half a trillion euros in cheap loans, further greasing the wheels of the financial system, but depressing the value of the euro. The ECB said it had allotted nearly 530 billion euros in what many believe to be the second, and last, long term refinancing operation to provide liquidity and increase lending to businesses and individuals to prevent a full-blown recession.
Spot gold initially rose to a 3-1/2 month high at $1,790.30 after the move was announced, but quickly reversed as the euro surrendered gains. It was at $1,784.61 an ounce at 1452 GMT, little changed from $1,783.99 late on Tuesday. "There was nothing exciting here, with the LTRO 2.0 as expected, largely," said VTB Capital analyst Andrey Kryuchenkov. "Gold should remain rangebound."
The three-year loans are the ECB's latest bid to combat the debt crisis which has thrust the single European currency bloc to the verge of recession, and adds to the environment of loose monetary policy and ample liquidity that tends to benefit gold. Gold's relatively tight link with the euro means it is likely to move in response to fluctuations in the currency rather than to fluctuations in investor risk appetite right now.
Gold is up 2.6 percent in February, on track for a second month of gains, but the continued failure of the price to breach $1,800 an ounce could prompt some investors to book profits, analysts said. "The (amount allotted) was pretty much in line with expectations, so neither gold nor euro/dollar have done very much on the back of it after an initial reaction, as it's in the price," Credit Suisse analyst Tom Kendall said.
"$1,800 is the obvious target, but I wouldn't be surprised to see it print at 1,800 and come off and consolidate, having done that," he said. Since the ECB's debut three-year allotment in early December, gold prices have risen by around 4.5 percent, compared with a near-17 percent gain in the price of silver.
The key question for policymakers and financial markets alike is how much of the money from the operation will make its way into the system and plump up flagging growth, and what risk such a rise in liquidity means for inflationary pressures. "For gold, low interest rates make it less attractive for producers to sell forward and kill the rally. Loose monetary policy also creates the spectre of inflation down the line so it's gold positive," Sharps Pixley director Ross Norman said.
Low interest rates benefit gold because its own lack of inherent yield means that the premium forfeited by owning the metal rather than yield- or dividend-bearing stocks, bonds or currencies shrinks. In other gold-related news, Iran said it would take payment from its trading partners in bullion instead of dollars, according to Iranian state news agency IRNA, which quoted the central bank governor on Tuesday.
European grain traders reported earlier this month that Iran had made payment for grain shipments using gold and oil, as payment in dollars into Iranian banks has become increasingly tough following the imposition of Western sanctions on Tehran. There has been no discernible impact on the gold price so far from Tehran's use of bullion as a method of payment. "When you look at the size of speculative flows in gold compared to physical, I don't think it would have that much of an impact," Saxo Bank senior manager Ole Hansen said.
"Gold is still not able to break $1,800. It will eventually, but if this (story) was the one to do it, it would have happened already," he said. The price of silver, which has gained more than 12 percent this month, is at its highest since September, as speculative investment has given the market a boost.
Silver was last up 1.1 percent on the day at $37.30 an ounce. Platinum was up 1 percent at $1,730.74 an ounce, set for a 9 percent rally this month on the back of supply disruption from top producer South Africa. Impala Platinum, the world's second-largest platinum miner, said on Tuesday it has lost 100,000 ounces in production because of an illegal strike at its key Rustenburg facility and lost 2 billion rand ($263.66 million). Palladium was up 0.2 percent at $720.22 an ounce, set for a 5.5 percent rally this month.