Gold extended gains on Friday to hit a two-week high on speculative buying after the European Central Bank said it had no plans to sell any more gold this year. Other precious metals also extended gains, with silver hitting a three-week high and platinum and palladium rising to their highest in more than a week.
The ECB said it had sold 37 tonnes of gold from its reserves over the past two months and had no plans for further sales in the current year of the central bank gold agreement.
"The ECB news really gave the market a big lift, it will definitely make it easier for gold to test the upside," a London-based trader said. European central banks pledged to cap their total sales at 2,500 tonnes in the 2004-2009 period, or 500 tonnes a year. The third year of their five-year agreement runs until September 26.
Gold touched $669.25 a troy ounce, the highest since May 16, and was at $667.85/668.35 by 1451 GMT, against $659.80/661.30 in New York late on Thursday, when it gained nearly $10 on a weaker dollar. "You are going to see the market coming under pressure from time to time by the weight of the central bank selling, but the funds have taken it up today," said Peter Hillyard, head of metals sales at ANZ Investment Bank. He said the ECB's announcement had lifted sentiment, but other central banks were expected to continue selling gold from their reserves.
"If there was no central bank selling in this market, you would be probably talking about $720," he said, referring to gold prices. Spain's central bank sold 80 tonnes of gold in March and April, and analysts said the bank also sold in May. The gold market earlier reacted to a fall in the dollar on a weaker than expected core inflation reading.
But the US currency later rebounded to hit a seven-week high against the euro after a survey showed a US manufacturing index for May rose to its highest since April 2006. "(Gold) will probably continue to be fairly dependent on the dollar," said Stephen Briggs, economist at SG Corporate and Investment Banking. "There are various different influences in either direction but at the moment none of them look to be heavily dominant."
Volatile prices have affected the physical gold market. Gold imports by Turkey, one of the world's top consumers of the metal, fell around 12 percent in the first five months of the year to 74 tonnes from a year earlier.
Shuji Sugata, manager at Mitsubishi Corp Futures and Securities Ltd, said short covering emerged after confirming solid buying interest below $650 this week. "We've seen pretty big fund outflows from commodities since mid-May, but now some funds are coming back because the outlook looks brighter after yesterday's rebound." In other metals, platinum rose to $1,288/1,293 an ounce from $1,278/1,283 in New York, while palladium rose $3 to $369/373 an ounce. Silver rose as high as $13.61 before falling to $13.56/13.60 an ounce, versus $13.42/13/45.