Europe gold lower as lending appears in market
Wednesday February 28, 5:29 am Eastern Time
LONDON, Feb 28 (Reuters) - Gold started Europe's Wednesday session sharply lower after further lending appeared in Asia and Australia, traders said.
At 1020 GMT spot gold was at $264.80/$265.30 a troy ounce, down from the New York Tuesday close of $268.00/$268.50.
One-month lease rates fell as low as 2.75 percent in early trade, after peaking at 4.75 percent on Tuesday.
The rates spike had been triggered by liquidity concerns and fuelled by talk of central banks leaving the lending market, but most market players remained sceptical of such speculation.
``Like yesterday, we look for gold to track movements in the forwards for the time being. Should further lending appear today we look for gold to test nearby support around the $263.50 level,'' one analyst said.
But analysts at Deutsche Bank in London said nervousness over the lease rates might lead to further price rises.
``With the gold market having seen no fundamental change, the market is currently very nervous as European central banks are reported to have little material to lend at present, which has pushed up lease rates and spurred short position holders to cover positions,'' they wrote in a daily market report.
``However, open interest data suggests that not a great deal of shorts have yet been covered, and in our view, further short covering activity could support the price another $7-$10 an ounce higher in the short run.''
While Indian demand had all but disappeared at the higher numbers, gold was seen benefiting from a government decision revealed in the budget on Wednesday to cut the import duty on gold to 250 rupees per 10g from 400 rupees, in a move to discourage smuggling.
``In the near term we expect to see some demand re-appear at prices below $265,'' added the analyst.
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