Bullion rises on dollar weakness, investors' risk aversion
Gold (GC-FT925.000.700.08%) futures rose above $920 (U.S.) an ounce Tuesday, after hitting a six-week low earlier in the session, with currency fundamentals proving the dominant factor as the U.S. dollar was hit by concerns over U.S. indebtedness.
Traders said that bullion prices, after hitting three-month highs recently, just shy of $1,000 an ounce, were due for the falls seen in recent days as speculators cleared out stale long positions and as inflation expectations were easing.
However, the metal's role as a hedge against jittery sentiment in other asset classes proved supportive, with investors shifting into risk-averse gear as they waited for clues on fiscal policy from the U.S. Federal Reserve.
U.S. August gold futures settled up $3.30 at $924.30 an ounce on the Comex division of the New York Mercantile Exchange.
Spot gold was at 924.20 per ounce by 2:09 p.m. ET, against its previous finish of $921.90. Bullion hit a six-week low at $912.90 during the Asian trading hours.
“We are seeing quite a lot of nervousness in the market,” said James Moore, analyst at TheBullionDesk.com.
“There are a lot of concerns about the long term impact of quantitative easing, and until we see a clear indication as to the Fed's stance on fiscal policy, it will be a bit of a game of wait-and-see,” Mr. Moore said.
Concerns about reserve diversification away from U.S. assets caused the dollar to turn lower against the euro ahead of the Federal Reserve's monthly meeting, after Moody's said one risk to the U.S.' triple-A rating is if the dollar is challenged as the main reserve currency..
The dollar fell against the euro on speculation the Federal Reserve may lower expectations of an interest rate rise when it concludes its meeting on Wednesday.
A $40-billion auction of two-year Treasury notes on Tuesday saw a high yield of 1.151 per cent, the highest since November with strong demand.
However, low demand for remaining auctions will raise concerns about how the U.S. will finance its huge deficits.
A weaker dollar makes metals and other commodities priced in the U.S. unit cheaper for non-U.S. investors.
George Nickas, commodities broker at FC Stone, said that bullion investors who were looking for value stepped into the market after gold tumbled 2 per cent on Monday. He added that gold's positive fundamentals were not dampened by the dollar's sudden strength recently.
Overall investor caution was stirred by the World Bank on Monday, which said prospects for the global economy remained “unusually uncertain” as it cut 2009 growth forecasts for most economies.
The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said its holdings fell to 1,131.24 tonnes as of June 22, down 0.91 tonnes from the previous business day.
It was the first change in the holdings since June 5. The holdings hit a record 1,134.03 tonnes earlier in the month.
In mining news, a spokesman of Freeport-McMoRan Copper & Gold Inc's said that it Grasberg gold and copper mine was unaffected by the 6.7 magnitude quake that struck off the Papua New Guinea's island of New Ireland.
In other metals, silver (SI-FT13.85----%) was at $13.85, up from $13.72 quoted late in New York on Monday. Platinum (PL-FT1,165.500.100.01%) dropped slightly to $1,159 from $1,159.50, while palladium (PA-FT235.70-1.30-0.55%) was up at $234.50 from $232.00.
