Gold creeps up in Europe, needs to crack $345/oz
Wed May 7, 2003 06:09 AM ET
By Clare Black
LONDON, May 7 (Reuters) - Gold was marginally firmer in Europe on Wednesday but with the market stalling yet again at the $345/oz level, some traders were looking for the precious metal to fall back.
The near-term outlook for the yellow metal remained dependent on the performance of the euro, however, with any further strengthening of the latter seen helping gold to resume its latest rally.
"Gold seems to have been running out of steam ahead of the 100-day moving average ($345) over the past couple of days, so I would think we are probably due for a move down towards $338, unless the euro gets a second wind and starts to break $1.15," Simon Weeks, bullion director at Scotiamocatta in London, told Reuters.
Spot gold was trading at $342.75/343.50 an ounce at 0943 GMT, slightly up from New York's last quoted $342.35/343.05.
The metal scored its highest level in seven weeks the previous day at $344.70 an ounce, bolstered by the ailing dollar, but it hit formidable resistance at $345, despite many analysts and traders looking for it to test the $350 level.
"Gold has really under-performed. Based on the euro's move yesterday (Tuesday), we should be at $350," said Gordon Cheung, director of Mitsui Bussan Precious Metals in Hong Kong.
The euro climbed to a new four-year high of US$1.1455 in New York on Tuesday after the U.S. Federal Reserve said it would leave its key lending rates unchanged at current 40-year lows. However, it fell back a little on Wednesday in Europe to trade by 0945 GMT at $1.1396/98.
Bullion market professionals and investors appear to have interpreted the Fed's complex, post-meeting statement as negative for the U.S. dollar and bullish for gold prices.
The Fed made clear it hoped a lagging recovery in the U.S. economy would gain steam now Iraqi hostilities had ended, but it also suggested future interest rate cuts were possible since it was not clear when a robust recovery would come.
The Fed also exposed its fear of deflation, stated as a possible "unwelcome substantial fall in inflation".
"Regardless of what you expect for the euro zone, the consensus appears to be that the U.S. needs to do more to stimulate growth, so the dollar will remain under pressure until we see the turnaround," said a trader in Sydney with an international bank.
A weaker dollar enhances the bullion buying power of European-based investors.
If gold slipped back to the lower end of its recent $345-$338 trading range, traders expected the fall to be cushioned by physical buying.
"Demand has been good and until June time when the holiday season starts, it will probably remain that way," Weeks said. "They (physical buyers) have done quite a lot, so they can afford to be quite picky with prices, but I would certainly expect them to be good support."
In other precious metals, silver fell back to $4.75/4.77 an ounce from New York's previous $4.77/4.79, while palladium clung on to its recent gains and was indicated at $157.00/162.00 versus $156.50/161.50.
Platinum continued to recover from last week's four-month lows at just below $600, moving up to $628.00/632.00 on Wednesday from $623.50/628.50.
"Platinum gained $20 yesterday.... The rally was driven by short-covering which continued overnight on TOCOM, and which we expect to persist this afternoon," Barclays Capital said in a daily report. (Additional reporting by Kathleen Kearney in Hong Kong)
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