LONDON: Gold rose on Wednesday as the euro continued its break higher
versus the dollar, after a tender for cheap loans from the European
Central Bank saw a greater take-up among banks than expected, easing
fears of a credit crunch.
Spot gold hit a high of $1,641.50 and was up
0.6 percent at $1,623.19 an ounce at 1229 GMT, further recovering from
last week’s drop to a near three-month low. It is up nearly 15 percent
this year.
European shares and other commodities such as oil also rose,
taking pressure further off gold, which was caught up in selling of
other financial assets earlier this year as investors liquidated bullion
holdings to cover losses elsewhere.
“The key thing here is the very
strong euro rebound,” said VTB Capital analyst Andrey Kryuchenkov.
“Peripheral bond yields are down across the euro zone. Commercial banks
can use the lending facility from the ECB, with rates that are very low,
to buy bonds, which are higher yielding.”
“Because gold is so closely
correlated with equity markets, with the dollar, you’ve had this
rebound.”
Bullion, like other dollar-priced assets, tends to benefit
from weakness in the US currency, as it becomes cheaper for holders of
other currencies. Banks took a huge 489 billion euros at the ECB’s first
ever offering of three-year funding on Wednesday, providing hope a
credit crunch can be avoided. “You have to regard it as a positive
result,” said Societe Generale analyst James Nixon.
“This is at least a
solid 240 billion euros (net) increase for banks.” The euro climbed in
response and stock markets rose. Further signs that Europe’s funding
crisis is easing would be positive for the euro.
Gold’s rise took it
back through its 200-day moving average near $1,621 an ounce, a key
technical level it fell through last week. “The next resistance sits at
$1,642, the high from Dec. 14,” said ScotiaMocatta in a note.
While
regaining that level is positive, gold will likely struggle to make
significant gains ahead of year end, as traders wind down for the
Christmas and New Year holidays.
Physical demand for the metal was
sluggish in the world’s number one gold consumer, India, dealers in
Mumbai said, as rising prices put off buyers.
US gold futures for
February delivery were up $8.30 an ounce at $1,625.90. Among other
precious metals, silver was up 0.6 percent at $29.70 an ounce.
The
gold:silver ratio, or the number of silver ounces needed to buy an ounce
of gold, held near 55, having this week hit its highest level since
November 2010.
Silver has tended to underperform gold since its sharp
price slide in early May spooked investors. Spot platinum was up 0.5
percent at $1,434.74 an ounce, while spot palladium was up 1.2 percent
at $630.06 an ounce.
Reuters
