Gold bounces as dollar dips but stays below $800

Gold bounces as dollar dips but stays below $800

Singapore: Gold bounced Monday after the US dollar reversed last week’s gains but the wild swings in prices since a recent rally to a 28-year high suggested year-end selling may not be over yet.

Spot gold rebounded to $786.40/787.40 an ounce from $783.50/784.20 in New York Friday, when it fell to its lowest level since 20 November at $778.70 in a correction from $845.40 hit on 7 November -- its best level since January 1980.

Gold has lost around 7% in value since spiking its best level in nearly three decades. Charts showed gold was trading below the 14-day moving average around $800 but could find solid support around $775 -- the 50-day moving average.

“It is seen the current price drop has been definitely quite alluring to most investors to get into the market," said Pradeep Unni, an analyst at Vision Commodities in Dubai.

“But the current choppy price action and sliding oil prices is serving as a distraction. In a nutshell, most investors are in a precarious position," he said.

In a research report, Goldman Sachs told clients they should sell gold in 2008 to take advantage of falling prices as the dollar steadies, naming the strategy as one of its top 10 tips for next year.

“Everybody is looking for the price to go down. Of course this is good for my customers, especially jewellers. In fact, the physical market is busy with people buying back gold bars," said a dealer in Singapore.

“We are having good buying from Vietnam, Indonesia and Thailand," he said.

But the purchases were not strong enough to push up premiums for gold bars in Singapore, a centre for bullion trading in Southeast Asia. Premiums were on par with the spot London price, unchanged from last week

The dollar dipped to 110.93 yen but was well above the 2-1/2-year low of 107.22 yen hit early last week.The euro rose to $1.4656 having pulled back from a record high of $1.4968 hit last month. The dollar gained last week after Federal Reserve officials signalled they would cut interest rates as needed to help the economy and markets recover.

Lower US interest rates usually weigh on the dollar because they reduce the yield on dollar-denominated assets, but this time analysts said the market was taking a longer view. In theory, a rate cut should boost gold’s appeal as an alternative investment.

Gold’s drop below $790 and oil’s declines to below $90 a barrel ignited technical and fund selling last week. But jewellery makers and speculators were likely to take advantage of the price drop to buy back in coming days.

“Physical buyback is expected to come into the precious metals market. The price is still supported above the mid-term support around the $775 level.," said William Kwan, a dealer at Phillip Futures in Singapore.

“It’s quite volatile at the moment," he said.

A price drop has attracted buying in India, the world’s largest gold consumer. Most-active COMEX gold futures for February delivery rose $3.6 an ounce to $792.7 in Asia after falling for a fourth straight session in New York on Friday.

The benchmark October 2008 contract on the Tokyo Commodity Exchange fell 27 yen per gram to 2,823 yen on the back of a firming Japanese currency.

Oil bounced back above $89 a barrel on Monday as dealers bet last week’s sell-off driven by growing expectations of an increase in OPEC production, signs of waning health in the US economy and a mild draw in US crude stocks was overdone.

But oil was trading below a record-high closing price of $98.18 on 23 November.

In other precious metals, silver rose to $14.02/14.07 an ounce from $13.96/14.01 in New York.

Platinum edged down to $1,437/1,442 an ounce from $1,438/1,442 in New York. Palladium was almost flat at $347/352 an ounce.

Falls in cash platinum were limited, with Japanese platinum futures rising as supply worries provided support with an expected strike over safety in South Africa on 4 Decemebr. Three mineworkers died in separate accidents on Saturday, the country’s biggest mining union said.