Gold buyer's notes

The yellow metal is currently touching highs around $1,196 as waning worries of fallout from Dubai and the Australian rates decision diminish the greenback’s safe haven appeal

Author: Jan Harvey (Reuters)
LONDON (REUTERS) -

Gold hit record highs near $1,200 an ounce on Tuesday as dollar weakness fueled buying of the metal as an alternative asset, while investors speculating on more gains were cheered by its recovery from last week’s losses. Spot gold hit a peak of $1,198.70 an ounce and was bid at $1,192.15 an ounce at 1506 GMT, against $1,179.10 late in New York on Monday. Prices could push through the $1,200 an ounce level to new record highs if the dollar continued to weaken, analysts said. Significant downside risks to the price were unlikely to be seen before January, said Michael Lewis, head of commodities research at Deutsche Bank, with seasonal factors affecting the dollar likely to drive gold higher in the short term.

“We see $1.55 in the euro-dollar, so that is where we think the main catalyst is for new highs for gold,” he said. “There is normally quite a strong seasonal pattern in the dollar, (and that) will be driving a further rally in gold.” The dollar fell against a basket of six other currencies .DXY on Tuesday as waning worries about Dubai’s debt, Australia’s interest rate hike, and upbeat euro zone data dimmed the greenback’s safe-haven appeal.

The dollar also pared gains against the yen after comments from the Bank of Japan on monetary policy. Weakness in the U.S. unit boosts gold’s appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies. Ole Hansen, senior manager at Saxo Bank, said investors had been encouraged by the strength of gold’s recovery after it fell below $1,140 an ounce last week, with the fall being met with strong fund buying.

“Everyone was waiting for that correction, and the way gold recovered suggested there was a lot of buying lurking in the wings (among) people who missed the opportunity to get into the market in the first place,” said Hansen.

COMMODITIES FIRM
U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange also hit a record $1,200.50 an ounce and were later up $11.10 at $1,193.40.

Other commodity prices also firmed on the back of the weaker dollar, with base metals up and oil nearly 1.5% higher to above $78 a barrel. Gold tends to track crude prices, as the metal can be bought as a hedge against oil-led inflation. Elsewhere the world’s biggest gold miner, Barrick Gold Corp (ABX.TO), said on Tuesday it had completed the elimination of all of its gold hedges as planned. De-hedging has represented a significant source of demand in recent years.

In the physical market, the largest gold exchange-traded fund, the SPDR Gold Trust, said its holdings rose 2.134 tons to nearly 1,130 tons on Monday. Indian gold offtake abated on Tuesday as prices resumed their upward trend, after a modest pick-up in recent sessions when traders stocked up ahead of wedding demand. Sales of scrap persisted in other parts of Asia on Tuesday, cutting premiums, dealers said.  Analysts say they expect the gold market to continue taking support from fund and other investment demand, and further buying from central banks.

News in early November that India’s central bank had bought 200 tons of gold, followed by acquisitions by Russia, Sri Lanka and Mauritius, sparked a 13% price rise that month. Among other precious metals, spot silver was bid at $18.75 an ounce against $18.45. Platinum was at $1,470 an ounce against $1,452, while palladium was at $379 against $363.50.

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