June 11, 2010 / 2:36 AM / 8 years ago

Gold rises on technical buying, economic worries

NEW YORK (Reuters) - Gold rose toward $1,230 an ounce on Friday, gaining for a third straight week, with technical support and concerns over the economic recovery firmly underpinning prices.

A gold jewellery shop owner arranges ornaments at a counter in Kolkata May 27, 2010. REUTERS/Parth Sanyal

Dissipating worries about a European credit contagion and equity market rallies earlier this week have taken some steam out of the bullion market, traders said.

Gold is struggling to make significant headway after hitting a record $1,251.20 an ounce on Tuesday, having fallen 1 percent on Thursday as risk appetite recovered and investors worried the market had become overstretched.

“I think gold is going to struggle, provided we don’t get another bout of extreme risk aversion,” said RBS Global Banking & Markets analyst Daniel Major.

“We are going into the weakest period for jewelry offtake, and high and volatile prices in local currencies are likely to compound any seasonal weakness,” he said. “From that point of view, there is not going to be much support from the physical market.”

Spot gold was at $1,227.55 an ounce at 2:56 p.m. EDT (1856 GMT), against $1,215.80 late in New York on Thursday. U.S. gold futures for August delivery settled up $8 at 1,230.20.

Silver was at $18.22 an ounce versus $18.19, platinum at $1,535 an ounce versus $1,534, and palladium at $444 against $450.50.

The precious metal rose to session highs at above $1,230 an ounce after U.S. retail sales data came in lower than expected, pressuring stock markets.

Slightly weaker U.S. stocks on Friday lead to some safe-haven demand in gold. .N Sharp falls in equity values and the euro this year had benefited gold as an alternative asset.

“Demand for gold as a safe haven and an alternative currency remains, though maybe not in the heightened way it was a few weeks ago,” said Credit Agricole analyst Robin Bhar.

Strong investment demand continued. Holdings of the world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, rose 7.6 tonnes to a record 1,306.137 tonnes on Thursday. <GOL/SPDR>

“This trend shows that medium to long-term investors see further risks on the horizon and view the lower gold price as an opportunity to buy,” said Commerzbank in a note.

TECHNICAL BUYING SUPPORTS

From a technical perspective, gold’s consolidation is likely to set it up for fresh gains in the medium term, analysts said.

“Despite the recent weakness, we continue to see pullbacks as counter trend and temporary ahead of a resumption of the larger bulltrend,” said Barclays Capital in a note.

Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago, said that gold’s rise on Friday was largely due to technical buying as prices quickly rebounded after touching its 20-day moving average at $1,212.

However, he said that gold needed to hold at current levels or risk “a quick and short-lived washout of about $40 to $50.”

Additional reporting by Jan Harvey in London; Editing by Lisa Shumaker

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