Gold Edges Up After 4 Day Loss, Euro Zone Weighs

October 11, 2012 at 08:54

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Gold edged up on Thursday after dropping more than 1 percent over the last four sessions, although a gloom over the euro zone debt crisis that is
supporting the dollar is expected to take some shine off bullion.

But long-term interest in the safe-haven metal remains intact as evident from a rise in holdings of exchange-traded gold funds to a record high of 75.03 million ounces by Oct. 9.

“The continuously rising ETF holdings show that investors are still confident in gold in the longer term, even though the euro zone trouble may have some short-term impact,” said Chen Min, an analyst at Jinrui Futures in the southern Chinese city of Shenzhen.

“The Fed’s QE and low interest rate policy has put a floor under gold, and we probably won’t see a sharp pullback,” he said.

A poll of gold analysts echoed Chen’s view, showing that gold is expected to reach a record-high average price in the fourth quarter and score further gains next year.

Stimulus measures launched by key central banks in September continues to drive investors to gold, a hedge against inflation and currency debasement caused by looser monetary policy.

A stronger dollar is, however, expected to keep a lid on gains by making commodities priced in the greenback more expensive for buyers holding other currencies.

The dollar index rose to a one-month high, after Standard & Poor’s downgraded Spain’s credit rating and the IMF chided the European Union for not doing enough to curb the euro zone debt crisis, now in its third year.

The International Monetary Fund called for swift action as the euro zone debt crisis drags on while the United States and Japan show scant progress handling their budget deficits.

Technical analysis suggested that a bearish target for spot gold at $1,750 an ounce remains unchanged.

Hong Kong’s net gold flow to China in August dropped 26 percent from a year ago, as high gold prices and a slowdown in the economic growth weighed on appetite for the metal.

Asia’s physical gold demand has been lacklustre in recent months.

“India’s monsoon was below par and gold in rupee is still very expensive, yet we still have $1,760 gold,” said a Singapore-based trader.

“The reality is that investment demand from Europe and the United States, as well the dollar direction is a much bigger driver for gold now.”

Analysts are less upbeat about platinum’s prospects now than they were three months ago as the threat to demand from a slowing global economy overshadows worries about supply disruptions in top producer South Africa.