Gold steadies on Irish aid hopes

NEW YORK Fri Nov 19, 2010 3:24pm EST

A 999.9 fine gold 100 troy ounce Engelhard gold bar is seen on the floor of the New York Stock Exchange in New York, November 9, 2010. REUTERS/Shannon Stapleton

A 999.9 fine gold 100 troy ounce Engelhard gold bar is seen on the floor of the New York Stock Exchange in New York, November 9, 2010.

Credit: Reuters/Shannon Stapleton

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NEW YORK (Reuters) - Gold prices were little changed on Friday as the euro bounced on growing confidence that Ireland's debt crisis will be resolved, but China's measures to tighten its economy kept bullion under pressure.

Bullion fell for a second consecutive week as the metal was caught up in broad-based selling, along with other commodities, by investors' need to liquidate positions amid increasing margin calls.

A financial aid plan to help Ireland cope with its battered banks will be unveiled next week, European Union sources said on Friday, but experts warned a rescue may not be enough to prevent contagion to other euro zone members.

"The sense of calm that has returned today and yesterday is taking away any safe-haven bid that may have emanated from the potential crisis," said Tom Pawlicki, a precious metals and energy analyst of MF Global.

At the same time, speculation about a possible interest rate hike by China, a top raw materials consumer, is likely to continue to weigh on gold and other commodities.

A decision by China on Friday to raise banks' required reserve ratios may not have been expected in the commodities markets, but many investors had factored in some form of government action to sap excess liquidity.

Spot gold was up 0.1 percent at $1,353.50 an ounce at 2:13 p.m. EDT, having earlier fallen as low as $1,341.40. U.S. gold futures for December delivery settled down 70 cents at $1,352.30.

Silver rose 1.3 percent to $27.27 an ounce.

COMEX volume continued to be lighter than earlier this week, when the markets sold off. Gold futures volume was more than 20 percent below its 30-day average, while silver turnover was largely in line with its average.

The gold market stabilized as the euro inched higher against the dollar.

Hopes that Ireland was near a deal to get tens of billions of euros from its European partners and the International Monetary Fund helped push the euro above $1.37 overnight, but momentum stalled ahead of resistance around $1.3750.

"The European situation will continue to play up, which should support metals," said Saxo Bank analyst Ole Hansen.

MF Global's Pawlicki said CME Group's (CME.O) decision to raise the margins to trade soy, sugar, rice and several other agricultural commodity contracts dented buying sentiment.

Silver, gold and other precious metals sold off recently after similar margin increases by the exchange triggered heavy liquidation, Pawlicki said.

Expectations that the dollar will weaken once more is still underpinning longer-term positive sentiment toward gold, analysts said.

"With the Fed continuing to vouch for QE2, dollar weakness will continue to persist, and, along with that, a possible solution to the Irish debt crisis has resulted in a firmer euro," said Richcomm Global Services analyst Pradeep Unni.

"These two factors will continue to provide a bullish bias to the metal in the near term."

COMMODITIES UNDER PRESSURE

Oil, base metals and other commodities were under pressure on Friday, with the Reuters/Jefferies CRB index .CRB losing about 2 percent for the week as news China was lifting banks' reserve requirements refocused attention on the prospect of a rate hike in the world's biggest consumer of many metals.

China said it would raise banks' reserve requirements by 50 basis points on November 29. Commodity prices tumbled this week on fears the government would lift rates after inflation hit a 25-month high in October.

But demand for gold-backed exchange-traded funds continued to be soft, with holdings of the world's largest gold ETF, the SPDR Gold Trust (GLD.P), declining 4.6 tonnes to a one-month low of 1,286.299 tonnes on Thursday.

Platinum, mostly consumed by the auto industry to clean vehicles' exhaust fumes, was in focus after prominent commodities investor and hedge fund manager Dwight Anderson said the metal's output has possibly peaked, and prices are likely to rise to record highs.

"I actually don't believe in the geological math that supports the thesis of peak oil," the founder of the Ospraie hedge fund said at the ETF Securities investor conference in New York on Thursday.

"But, where platinum is concerned, peak production, I think, has already occurred," Anderson.

Platinum edged up 0.2 percent to $1,664.49 an ounce and palladium gained 1.1 percent to $701.

(Additional reporting by Jan Harvey in London; Editing by Walter Bagley)

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