Wednesday, August 25, 2010

Gold gains as econ worries persist; physicals sell

SINGAPORE: Gold rose on Wednesday, Aug 25 despite a slight drop in ETF holdings, with more poor data from the United States likely to spur buying by investors worried about the health of the global economy.

But thin volume ahead of the release of US durable goods data showed the gains were driven mainly by speculators as higher prices also spurred selling of gold bars in Singapore.

Gold added US$1.40 to US$1,230.65 (RM3864.24) an ounce by 0324 GMT, having dropped to its weakest level in nearly two weeks around US$1,210 on Tuesday before bouncing to more than US$1,235 after sales of previously owned US homes took a record plunge in July.

Other precious metals were mostly higher, with silver underpinned by a rise in iShares Silver Trust holdings and purchases by Indian consumers.

"It seems that we are still bound in a range trading. It's just a normal market. Nothing special, but still there's some demand here," said Ellison Chu, manager of precious metals at Standard Bank Asia in Hong Kong.

US gold futures for December delivery fell US$1 to US$1,232.4 an ounce after rising as high as US$1,237.50 on Tuesday.

Shares dropped in Asia, with Japan's Nikkei at a 16-month low, as investors sold riskier assets after a series of poor US economic data amplified fears the economy culd be sliding into a prolonged period of stagnation or even recession.

The euro's upside was limited after rating agency Standard & Poor downgraded Ireland to AA- and warned the outlook was still negative, fanning worries about euro zone sovereign debt and the banking system.

In theory, economic worries will lift gold's safe haven appeal in times of uncertainty, but the metal's previous attempts to hit new highs have been met by profit taking. Gold struck a lifetime high around US$1,264 an ounce in June.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings slipped to 1,297.948 tonnes by August 24 from 1,299.468 tonnes on August 19. The holdings hit a record at 1,320.436 tonnes on June 29.

"There was plenty of good buying when prices hovered around US$1,220 last night, but then people start to sell back when the price is heading north again. Selling persists but volume is low," said a physical dealer in Singapore.

"We are also seeing good physical demand for silver from India lately," he added.

Demand for silver bars and coins has picked up in India as consumers seek to diversify risk as well as making a quick return, with prices of the metal far below that of gold.

In the energy market, oil bounced from a seven-week low on Wednesday as investors looked for relief in US durable goods and oil inventory reports due later in the day, after fears of a double-dip recession intensified with dismal housing data. ' Reuters

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