Gold recovers

23 Nov, 2011

Gold recovered on Tuesday as the market consolidated after heavy selling the previous day and as panic over western world debt subsided in the wider financial markets, lessening the need to sell gold to raise dollar funding. But the respite was seen as temporary, with investors rattled by the continuing stress on eurozone debt markets, and also by the apparent inability of US officials to reduce debt by forging a plan to cut $1.2 trillion from the budget.
Spot gold gained 0.90 percent to trade at $1,693.60 an ounce by 1432 GMT, off the four-week low of $1,665.88 hit on Monday. The precious metal has lost nearly 5 percent over this week and last. US gold also rose 0.92 percent to $1,693.90. "The gold price is a little bit oversold so today's seen a bit of consolidation," said Jesper Dannesboe, senior commodity strategist at Societe Generale. But he added: "I wouldn't be too confident it's going to rally short term because risk aversion is at very high levels and when risk aversion is extremely high gold tends to fall."
Knocking sentiment in wider markets like equities was data showing the US economy grew at a 2.0 percent annual rate in the third quarter, down from the previously estimated 2.5 percent. The dollar ratcheted up gains versus the euro as the US GDP data knocked risk appetite and as European banks scrambled to secure cash dollars amid funding strains.
A strong dollar usually makes dollar-priced gold costlier for European investors, weighing on gold. In addition, the need to sell gold to raise dollars to cover losses in other markets has in recent days over-ridden gold's traditional appeal as a safe haven asset that holds its value in times of economic or political turmoil.
In the medium term, however, safe haven plays could put a floor under gold prices, especially if the metal suffers sharp falls and starts to look appealing to investors in Asia and in top gold buyer India. "Fundamentally, gold is not looking that bad, especially were risk aversion to escalate, with investors returning to the ultimate safe haven asset. We still believe in limited losses for gold after the ongoing price correction," said VTB Capital analyst Andrey Kryuchenkov. Buying from China emerged in the Shanghai market overnight, though gold demand in India was subdued as a weakening rupee kept buyers at bay, further deterred by a rebound in local prices due to gains in overseas markets.
In other precious metals traded, spot silver rose 0.35 percent to $31.75 an ounce, recovering from a one-month low of $30.63 hit in the previous session. China's trade data revealed that the country's silver imports slumped 26 percent in October from a year earlier. The inflow of silver powder, used in the photovoltaic industry, dropped 20 percent.
"The (photovoltaic) sector had provided some support to silver prices, but in light of the concern about industrial demand, this is an element that has now softened, thus increasing the importance of investment demand to make up for the fundamental surplus," said Barclays in a research note. "However, investment demand in silver has also slowed recently, leaving prices more vulnerable to the downside." Spot platinum rose 0.34 percent to $1,551.99 an ounce, while spot palladium fell 0.23 percent to $583.38 an ounce.

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