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Gold gains as US dollar weakens

GOLD finished higher today, with the main catalyst a softer US dollar after disappointing economic data.

Technically, gold’s recent ability to hold above technical chart support also encouraged buying.

June gold, the contract month with the most open positions, rose $US8.80, or 0.8 per cent, to settle at $US1114.50 an ounce on the Comex division of the New York Mercantile Exchange. Nearby April climbed $US8.80, or 0.8 per cent, to $US1113.30.

Most-active May silver rose US19.6 cents, or 1.13 per cent, to $US17.526.

“The dollar is being pushed down and that’s obviously has a positive impact on gold,” said Peter Grant, senior metals analyst with USAGOLD – Centennial Precious Metals.

KEY COMMODITY PRICES: oil, gold, base metals, livestock and wheat

Investors often buy gold as a hedge against US dollar weakness. Also, a weaker greenback makes commodities generally less expensive in other currencies and thus can help demand. As the gold pit was closing, the euro was up to $US1.3532 from $US1.3413 late in the previous New York session.

There might be some selling in the US dollar to exit positions and book profits at month end, but there has also some buying in the euro due to various month-end factors such as contractual obligations, Mr Grant said.

Gold drew additional support as the US dollar softened when US economic data was weaker than forecast, said Carlos Sanchez, associate director of research with CPM Group.

The report that seemed to capture the most attention was one from payroll giant Automatic Data Processing and the consultancy Macroeconomic Advisers, saying that private-sector jobs in the US dropped by 23,000 this month. Economists were looking for a 50,000 increase.

Also, the Institute for Supply Management-Chicago said its business index fell to 58.8 in March from 62.6 in February, coming in below the consensus estimate of 60.8.

Technically, gold began its rise after holding support just above the $US1100 area yesterday, Mr Sanchez said. “It climbed steadily overnight and shot up somewhat sharply early in the day.”

Some of the buying came in the form of bargain hunting, particularly as exchange-traded fund demand remains strong, Mr Sanchez said. Holdings in SPDR Gold Shares, the world’s largest gold ETF, rose a little more than 5 tonnes to 1129.82 tonnes on Monday and remained steady. The total is up nearly 23 tonnes since the first day of the month.

June gold tested nearby chart resistance that Mr Sanchez put at around $US1120. The session high was $US1119.90, the strongest level since March 19. Mr Sanchez put the next resistance around $US1134, then $US1145 to $US1150.

Overall, gold remains largely range-bound, Mr Grant said. Spot metal is near the middle of a band of roughly $US1085 to $US1145 for the past one-and-a-half months.

“I think, given the underlying trend, the breakout (eventually) comes to the upside, but I don’t have a sense this is impending at this point,” he said. “I might change my tune and be a little bit more optimistic on a move above $US1150 to $US1160.”

Buying was encouraged in May silver by the market’s ability to hold above the $US16.50 area last week, along with a break back above $US17 earlier this week, Mr Sanchez said. The futures peaked at $US17.645, their strongest level since $US17.665 on March 10.

Mr Sanchez put the resistance in the area around $US17.65.

“You also may have had an increase in purchases from end users,” he said.

Meanwhile, July platinum settled up $US20.80 or 1.28 per cent, to $US1646.90 an ounce and hit a contract high of $US1655.30. June palladium rose $US9.60, or 2.04 per cent, to $US479.95 and hit a contract high of 487.50.

“You had platinum holding above $US1570 and palladium over $US440,” Mr Sanchez said. “They broke above some resistance levels — platinum at $US1600 and palladium at $US460. That sparked some buying interest.

“In addition to a weakening dollar, you’ve also had strong demand from the auto sector with increases in production and sales this year so far.”

As this and investment demand through exchange-traded funds remains strong, the market also got a boost when “trouble” on the supply side emerged, said a trader. Lonmin, the world’s third-largest platinum producer, announced yesterday that it closed down its No. 1 furnace after a leak.

Repairs are expected to last 30 to 40 days and not affect the company’s first-half results, which close March 31. Any changes to full-year guidance, if any, will be made once repairs occur…read more at The Australian