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PRECIOUS-Gold rises as ECB comments lift euro, stocks
July 25, 2012 / 10:48 AM / 5 years ago

PRECIOUS-Gold rises as ECB comments lift euro, stocks

* Euro recovers from lows, stocks rise in Europe, U.S.

* Physical demand still soft, ETF interest lacklustre

* Gold widens premium over platinum to highest since Jan (Updates prices, adds comment)

By Jan Harvey

LONDON, July 25 (Reuters) - Gold rose on Wednesday as the dollar dipped to session lows against the euro and stock markets extended gains, after Spain and France said the common strategy for euro area stability included the adoption of a supervisory mechanism for banks.

The euro quickly recovered ground it lost earlier against the dollar, allowing gold to move back above $1,600 an ounce for the first time since July 10, while stocks rose in Europe and opened higher on Wall Street.

They had already benefited in earlier trade from European Central Bank policymaker Ewald Nowotny’s comment that he could see grounds for giving Europe’s rescue fund a banking licence, which would allow it to tap cheap ECB funding.

“The ECB comments that the ESM can eventually get a banking license and a pronounced euro rebound against the U.S. dollar drove gold prices to 2-1/2 week highs,” Andrey Kryuchenkov, an analyst at VTB Capital, said.

“Buying emerged on the break back above the 22 day moving average, with orders triggered past $1,590.”

Gold has been particularly sensitive to moves in the wider financial markets in the absence of direction from physical demand, which has been weak in recent months. It tends to benefit from dollar weakness and sharper appetite for risk.

Spot gold was up 1.3 percent at $1,600.09 an ounce at 1341 GMT, while U.S. gold futures for August delivery were up $24.10 an ounce at $1,600.30.

Gold has held in a $75 range so far in July, its narrowest monthly spread since April. Weak seasonal buying in some Asian markets, waning inflows into gold-backed exchange-traded funds and caution among investors have limited price gains.

“Four to six weeks will take us into an interesting time for the gold market, which we think should be more constructive,” Credit Suisse analyst Tom Kendall said.

“Between now and then, physical demand is still pretty soft, positioning is disinterested across much of the investment community,” he added. “Technically the price action is starting to look a bit more constructive... but that could fade as quickly as it appears to have been building.”

PHYSICAL DEMAND SOFT

Physical gold traders in number one consumer India stayed on the sidelines after prices extended gains for a third straight day to hit their highest level in more than two weeks.

The most-active gold for August delivery on the Multi Commodity Exchange (MCX) rose to as much as 29,729 rupees per 10 grams, the highest level since July 6.

Among other precious metals, silver was up 1 percent at $27.21 an ounce, tracking gains in gold. Confidence in the metal remains shaky however, analysts said, with investors wary of taking positions in the volatile metal.

The world’s largest silver-backed exchange-traded fund, the iShares Silver Trust reported an outflow of 69.36 tonnes on Tuesday. ETFs, which issue securities backed by physical stocks of metal, have proved a popular way to invest in gold and silver in recent years.

“Silver is finding little support from the investor side at present,” Commerzbank said in a note. “The iShares Silver Trust... yesterday recorded outflows of nearly 70 tons. Money managers are also showing reticence at the moment, net long positions at the very low level of 4.5 thousand contracts.”

Elsewhere, gold’s rise pushed its premium over platinum, which has suffered from the impact of slowing economic growth on demand, above $200 an ounce for the first time since January. The platinum/gold ratio rose to a 7-1/2-month high at 1.15/1.

Spot platinum was up 1.3 percent at $1,396.24 an ounce, while spot palladium was up 1.3 percent at $563.49 an ounce.

Johnson Matthey, the world’s largest supplier of catalytic converters, posted a virtually flat first quarter, as the impact of lower platinum and palladium prices offset the benefit of increased car and truck sales in North America (Editing by Alison Birrane and James Jukwey)

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