LONDON — Gold prices rose 1.5 per cent on Tuesday on the weaker U.S. dollar, with investors keeping a close eye on the currency ahead of the U.S. presidential election result and expected central bank interest rate cuts this week.
Spot gold was at $731.45/733.45 (U.S.) at 1109 GMT compared with $722.35 late in New York on Monday. It earlier hit a high of $733.45 an ounce.
“The U.S. election might have an impact on the euro/dollar and so indirectly would have an impact on gold as well,” said Eugen Weinberg, an analyst at Commerzbank. “We will be treading water today.”
The U.S. dollar slipped against the euro and yen, although movements were muted ahead of the election outcome.
A win by Democrat Barack Obama, who is leading his Republican opponent, John McCain, in most polls, would be marginally better for the dollar, only because the Democrats already control Congress, analysts say.
Australia cut interest rates by a greater-than-expected 75 basis points on Tuesday, following rate cuts in the United States, China and Japan last week, with Britain and the euro zone expected to follow suit on Thursday with half point reductions in borrowing costs.
“The rate cuts...makes gold more attractive as real interest rates are becoming more negative,” said Mr. Weinberg.
Gold has bounced more than 7 per cent since falling to a 13-month low at $680.80 in late October, when investors cashed in bullion to pay losses in stock markets. The metal was still below a two-month high of $931 also hit last month as it struggled to revisit a record high of $1,030.80 in March.
Lower oil prices are putting gold under pressure as crude is considered an inflation hedge along with the yellow metal and both commodities have been moving in parallel recently.
Oil fell more than 1 per cent on fears of economic recession.
Physical demand for gold was slow as price volatility turned away jewellers. Gold imports to India, the world's biggest bullion market, fell 27 per cent in October year on year, the Bombay Bullion Association said. Platinum was trading at $815.00/835.00 ounce compared with $810 at New York's notional close.
However, platinum has lost more than half its value in the last quarter on slow auto sales data and the outlook for demand from carmakers, who consume more than half of the annual platinum output to make catalysts to clean exhaust fumes.
Automobile sales in Japan, excluding 660cc minivehicles, fell 13.1 per cent in October from a year earlier.
While U.S. auto sales plunged 32 per cent in October to lows unseen in a quarter-century..
Lonmin Plc, the world's No. 3 platinum producer, advised trade unions of possible lay offs due to a big drop in demand for the metal from car makers, South Africa's Solidarity union said.
However Standard Bank is positive for precious metals in the longer term.
“Looking past the current turmoil, the stimulus is bullish for precious metals - but we believe the current turmoil will likely linger for a few more months,” it said in a note.
