Mumbai: Gold held on Wednesday near a lifetime high hit in the previous session as lingering worries about inflation and tensions in the Arab world offset China’s latest move to raise interest rates.
Silver hit another 31-year peak as the metal attracted interest from investors looking for a cheaper alternative to gold as a hedge against inflation. The gold:silver ratio dropped to a 28-year low at 36.93.
Spot gold added $2.90 an ounce to $1,453.50 by 11:31pm - not far from a record of $1,456.85 hit on Tuesday on rallies in corn and oil prices and a downgrade in Portugal’s credit rating that highlighted euro zone debt worries.
”Gold is still looking to hit another record. Tensions in the Middle East and North Africa are not solved yet. Secondly, there are new uncertainties in the euro zone. These all will benefit gold,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
“The only thing is that the increase in Chinese interest rates will be a negative factor for a little while.”
The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings inched up to 1,212.745 tonne by 5 April from 1,211.229 tonne on 31 March.
Spot gold may hover around $1,452 per ounce for one trading session before climbing towards $1,477, according to Wang Tao, a Reuters market analyst for commodities and energy technicals.
US gold futures for June rose $2.50 an ounce to $1,455.0 an ounce.
China’s central bank raised interest rates on Tuesday for the fourth time since October, underlining Beijing’s determination to clamp down on inflation.
The increase comes before an expected rate hike by the European Central Bank on Thursday - which would be the first since the global financial crisis, showing how inflation is rising to the top of the global policy agenda.
China’s interest rates hike often triggers fears of a slowdown in the country’s demand for commodities, including gold and industrial metals, but London copper futures firmed on Wednesday and ignored Beijing’s latest move.
The 25 basis point rise announced by Beijing was viewed as just the latest step in a tightening cycle which has been going on for some time and was expected to continue.
Investors will still focus on the unrest in the Middle East and North Africa, which has also spurred buying in silver and pushed up oil prices.
Spot silver rose to as high as $39.42 an ounce, its highest level since early 1980, extending Tuesday’s gains.
”There’s buying in silver but we don’t really know whether it’s coming from China or anywhere else. We can say silver is cheaper to buy compared to gold,” said a dealer in Hong Kong.
”Silver will go up to $40 and it could rise to $100 in the next few years.”
Other dealers said India showed some interest in silver during the wedding season, when parents give jewellery, mostly gold, to their daughters.
In other markets, the yen fell as the Bank of Japan began a meeting on Wednesday that may signal its readiness to further loosen monetary policy to support the earthquake-hit economy, while Asian stocks were muted after the interest rate rise in China.
Gold in India up but wedding season stokes demand
Indian gold edged up on Wednesday evening tailing firm overseas markets, but a stronger rupee capped the upside, analysts and traders said.
Demand in physical markets was steady, supported by the ongoing wedding season, they said.
The most-active gold for June delivery on the Multi Commodity Exchange was trading 0.3% higher at Rs 21,225 per 10 grams at 4:07pm.
“Despite higher prices, the wedding season demand is there in the market,” said a dealer with a state-run, bullion-importing bank.
India is in the midst of the wedding season, when parents give gold jewellery to their daughters as part of their trousseau.
The rupee jumped to a 5-1/2 month high in afternoon trade on Wednesday on the back of the euro’s gains against the dollar and rising dollar inflows into equities.
India’s demand for gold should be robust in 2011 despite the likelihood of higher prices, pushed by geopolitical tensions, according to the World Gold Council.