Gold dips in pause after 4-day rally, palladium off

NEW YORK/LONDON Wed Apr 11, 2012 2:41pm EDT

Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011. REUTERS/Mike Segar

Gold Bullion from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York, September 15, 2011.

Credit: Reuters/Mike Segar

NEW YORK/LONDON (Reuters) - Interest in gold softened on Wednesday as investors paused for more definitive reasons to keep buying after four straight sessions of gains, but the stronger euro and a bullish price outlook from metals consultancy GFMS provided support.

"The market tone is a bit better, but we have had a bit of risk-back-on in the last day or two. So, I think that is hurting gold somewhat," said Peter Buchanan, senior economist at CIBC World Markets in Toronto.

On the positive side, he added, "We're still doubtful the Fed is going to pull the trigger on QE3, even with the soft U.S. payrolls," he said, referring to the central bank's quantitative easing via Treasury security purchases.

"Though there are some hints that the ECB might do their version of (economic stimulus). So, that's probably supporting sentiment," Buchanan said of the European Central Bank.

The euro climbed against the dollar and yen, as prospects for more rounds of European Central Bank bond buying calmed jitters over the recently battered debt of heavily indebted Italy and Spain. <USD/>

The European currency came under pressure in the past week as the debt crisis reignited. The focus fell on Spain, where the head of the central bank said on Tuesday commercial banks would need more capital if the economy continued to deteriorate.

Spot gold was off 0.2 percent at $1,656.99 an ounce by 12:49 EDT (1649 GMT). U.S. June gold futures slipped 40 cents to $1,660.30.

"The broader macro environment still remains positive. In the near term, the floor will be set by a combination of how strong investment demand is and how responsive the physical market is," said Suki Cooper, a precious metals analyst at Barclays Capital.

Investment in gold has cooled. Speculators cut their ownership of U.S. gold futures by more than a quarter since late February, although holdings of the metal in exchange-traded funds remained near the record high above 70 million ounces.

"Gold has found more support recently, but it doesn't have all of the catalysts in place to be driven substantially higher yet," Cooper said.

EURO TIES STRENGTHEN

The correlation between gold and the euro/dollar exchange rate strengthened on Wednesday to reach its most positive since early January, above 65 percent. That means the gold price is more likely to move in tandem with the single European currency than it was just six weeks ago.

"We think gold will be in a range of $1,600 to around $1,690 or $1,700, which is a fairly wide range. But I think it will be difficult for gold to break out of that range," Standard Bank analyst Walter de Wet said.

"What we are seeing is growing interest to buy in the physical market below $1,630. Should we drop below $1,600 the demand will be pretty strong," he said.

Metals consultancy GFMS, a unit of Thomson Reuters, said in its annual outlook for the gold market that a record high price above $2,000 an ounce next year could mark the peak of the precious metal's bull run of more than decade, as monetary policy in major economies starts to tighten.

For now, gold could drive above $2,000 on concerns over the euro zone debt crisis and the idea of more U.S. monetary easing, GFMS Chairman Philip Klapwijk told Reuters.

On the demand side, Hong Kong's gold exports to China rose 20 percent in February, as appetite for the precious metal remained strong there.

"On the public level, China's central bank will continue to accumulate gold, which is easier than liberalising their capital account and currency," said Jeremy Friesen, a commodity strategist at Societe Generale.

Accommodative monetary policy will remain an incentive for private investors to buy into gold, he added.

Silver fell 0.9 percent to $31.49 an ounce, pushing the number of ounces of metal needed to buy one ounce of gold up to 52.5 from 50 just one week ago, reflecting gold's relative out performance.

Platinum and palladium were lower, with platinum down 0.5 percent at $1,583.99 an ounce and palladium off 0.6 percent at $632.97 an ounce.

Earlier, data showed car sales in China cooled in March, following sharp gains in February. That weighed on palladium in particular.

Palladium is used mainly in catalytic converters in the exhaust systems of gasoline powered vehicles. China is now the world's largest car market and is chiefly gasoline-driven.

(Additional reporting by Rujun Shen in SINGAPORE; editing by Jane Baird)

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