December 20, 2010 / 11:01 AM / 9 years ago

PRECIOUS-Gold draws in safe-haven flows, up for second day

 * Gold rises on euro, watches Korea tensions
 * Silver, PGMs pare some gains
 * Coming Up: Euro zone consumer confidence Dec; 1500 GMT
  
 (Updates prices)
 By Amanda Cooper
 LONDON, Dec 20 (Reuters) - Gold rose for a second day on Monday, overcoming the weakness in the euro after a warning from the European Central Bank on the region’s finances encouraged light safe-haven flows into the metal.
 Tensions on the Korean peninsula also fed the safe-haven bid for gold after an artillery firing drill by the South Korean military on a disputed island near the border with the North.
 Spot gold EAU= was last up 0.6 percent at $1,381.55 an ounce by 1145 GMT, having touched an intraday high of $1,388.05 earlier. U.S. gold futures for February GCG1 rose $3.0 an ounce to $1,382.20 an ounce.
 Gold, which has risen by over 25 percent so far this year, is on track for a fourth successive month of gains.
 Lending additional strength to the rise in the gold price this month has been an increase in the inflows into bullion-backed exchange-traded funds and an expansion in open interest in U.S. futures.
 “Being contrarian at this point in time is probably not going to pay off,” said Saxo Bank senior manager Ole Hansen.
 “There seems to be an overwhelming belief that the market, as it is now, is pointing higher, but we need to see the third of January come first and see how it plays out,” he said, adding that the approaching holiday period had cut liquidity, leaving the market prone to more volatile trading than usual.
 Holdings of gold in the world’s largest gold-backed ETF, the SPDR Gold Trust (GLD), rose for the first time since early December, to 1,298.94 tonnes, reflecting investor demand for bullion. [GOL/SPDR]
 UBS precious metals strategist Edel Tully said global ETF holdings are now at a record 69.2 million ounces and pointed to a pick-up in European coin demand late last week.
 “It’s been quite a while since ETF and coin demand both increased at the same time: it occurred during the Greek crisis in Q2, but hasn’t over the past six months,” she said.
 “While one day of positive data does not suggest this tide is turning, we’ll be keeping a close watch on the underlining appetite.”
 On the currency markets, the euro slid to a two-week low on Monday, looking vulnerable to more losses against the dollar after breaching chart support on Friday after the ECB expressed “serious concerns” that Ireland’s bailout package could affect the institution’s liquidity operations in the euro zone. [ID:nLDE6BI0HC]
 Furthermore, with no real clarity emerging from a two-day summit of EU leaders last week, the euro looked likely to encounter further pressure.
 “Last week’s EU summit between policy makers did not address investor concerns aggressively enough and this was unable to really calm markets. Gold prices could be underpinned by persistent euro zone debt concerns,” said On Yin Ling, investment analyst at Phillip Futures in Singapore.
 “Perhaps we could see a new high in gold prices in 2011. For this year, I think as we head towards the year-end, investors may unwind positions and trading volume is coming down.”
 With the euro flagging, the dollar index .DXY hovered in positive territory, helped in part by the crisis on the Korean peninsula.
The U.S. the U.S. envoy to the United Nations Susan Rice said disagreements on the U.N. Security Council over the crisis are so severe that it is unlikely they can be resolved. [ID:nL3E6NK01M] [ID:nN19144528]
 Local dealers reported a lack of activity in the physical bullion market in Japan despite escalating tensions in neighbouring South Korea. Gold bars remained at a discount of 75 U.S. cents to the spot London prices.
 Silver rallied for a third day, keeping its ratio to gold pegged at multi-year lows. The spot price XAG= was last up 0.1 percent at $29.12 an ounce, having risen by nearly 75 percent this year to its highest since early 1980.
 iShares Silver Trust (SLV), the world’s largest silver-backed ETF, said its holdings fell to 10,903.34 tonnes by Dec 17 from a record 10,964.14 tonnes on Dec 14.
 Platinum XPT= was last flat at $1,695.50 an ounce, while palladium XPD= was up 0.4 percent at $740.00.  (Additional reporting by Lewa Pardomuan in Singapore; Editing by Alison Birrane)  

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