London: Gold prices rose back above $1,055 an ounce in Europe on Monday as the dollar’s slide to 14-month lows against the euro supported sentiment, but weaker phyiscal demand and easing oil prices capped gains.
Spot gold was bid at $1,055.40 an ounce at 0918 GMT, against $1,053.95 late in New York on Friday. US gold futures for December delivery on the Comex division of the New York Mercantile Exchange eased 50 cents to $1,055.90 an ounce.
“That gold is climbing further is not surprising, given weakness in the US dollar,” said Peter Fertig, a consultant at Quantitative Commodity Research.
“But the increase is not strong, and that may relate to the fact that crude oil is trading lower,” he added. “There are two conflicting forces at work here for gold.”
The dollar slipped to 14-month lows versus the euro on Monday after a Chinese report said Beijing should increase the holdings of euros and yen in its foreign reserves.
Weakness in the US currency makes the precious metal cheaper for holders of other currencies, as well as boosting interest in gold as an alternative asset.
Oil prices declined, however, as fears over the strength of the global economic recovery pressured demand expectations. Gold often tracks bellwether commodity crude, as the metal can be used as a hedge against oil-led inflation.
Physical demand for the metal remained soft. “Investors and dollar doom-sayers may say gold could rise higher, but physical markets are not at all in sync with that view,” said Richcomm Global Services senior analyst Pradeep Unni.
Wholesale gold traders in India, the world’s biggest bullion consumer last year, said they were picking up some bargains as prices retreated from record highs, but demand is soft overall.
Investment buying was also less than buoyant. The largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, reported no fresh inflows on Friday.
Speculative positions in US gold futures eased from peaks, with noncommercial net long positions falling 1.5% in the week to 20 October from a record 253,955 lots the week before, the weekly Commitments of Traders report showed.
“Investment demand was the driving force in gold’s rise to new record highs last week,” said Fertig. “If investor demand is not following through, there is nothing else left, as high prices in Asia are keeping potential buyers on the sidelines.”
Among other precious metals, spot silver was bid at $17.68 an ounce against $17.65.
In a note, Bank of America Merrill Lynch said silver prices had benefited from strong investment demand, and that a recovery in economic activity was likely to be reflected in industrial silver buying.
“After the recent sharp price rises, we are cautious on silver in the near-term, but we believe that a spike towards $20 an ounce is possible in 2010,” it said.
ETF Securities said holdings of its silver-backed exchange-traded commodity rose 1% or just over 200,000 ounces to a record 21.054 million ounces on Friday.
It added that its palladium-backed ETC also saw inflows of nearly 9,000 ounces 1.6% that day, bringing its total holdings to a record 558,337 ounces.
Spot platinum was at $1,358.50 an ounce against $1,358, while palladium was at $334 against $333.