January 13, 2010 / 3:46 AM / 10 years ago

Gold turns higher on physical buying, dollar fall

NEW YORK/LONDON (Reuters) - Gold prices rose in choppy trade on Wednesday as a lower dollar prompted physical buying and short covering after the previous session’s sharp losses.

A vendor places a gold statue featuring late Chinese leader Mao Zedong at a gold store in Xiangtan, Hunan Hunan province December 26, 2009. REUTERS/Stringer

“Gold is getting support from dollar movements, as we don’t really have any major catalysts to drive the market,” said Rick Bensignor, chief market strategist at Execution LLC, a New York-based broker-dealer.

The metal dropped along with most commodities on Tuesday after China’s decision to raise its banks’ reserve requirements sparked fears spending will be curtailed, decreasing bullion’s appeal as a hedge against inflation.

Spot gold was at $1,135.85 an ounce at 2:41 p.m. EST (1941 GMT), against $1,127.95 late in New York on Tuesday.

Bullion found support around its 50-day moving average at $1,130, analysts said, after trading as low as $1,119.35 earlier in the session.

U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange settled up $7.40 to $1,136.80 an ounce.

“This morning and last night, there were quite a few physical buyers bargain-hunting around in the marketplace, and we saw some good demand out of India and elsewhere,” said Afshin Nabavi, head of trading at MKS Finance.

“With the dollar back on the slide, there is more interest,” he added. “I wouldn’t be surprised if we pushed near to the high end of the range again, which is around $1,145-50.”

The euro hit a one-month high against the dollar on Wednesday, while higher-yielding currencies trimmed the previous day’s losses as investors concluded China’s surprise monetary tightening would not derail the world’s third largest economy.

“Gold has held up fairly well, but we could see more downward pressure, if the dollar rallies in the future,” said Tom Hartmann, analyst at California-based Altavest.

Strength in the U.S. unit curbs gold’s appeal as an alternative asset and makes dollar-priced commodities more expensive for holders of other currencies.

Gold prices will likely eclipse last year’s record-high levels in the first half of the year as stronger investment demand offsets the impact of relatively weak jewelry fabrication and lower de-hedging activity, precious metals research firm GFMS said in a report.

OIL BELOW $80

Among other commodities, oil prices fell to their lowest level this year after a U.S. inventory report showed rising U.S. distillate stocks despite severe winter weather.

Holdings of the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, dipped 3.7 tonnes on Tuesday, bringing their decline this year to nearly 18 tonnes, or 1.6 percent.

Silver tracked gold higher to $18.54 an ounce from $18.24. Platinum was at $1,572.50 an ounce against $1,568.50, and palladium was at $421 against $421.50.

U.S. platinum and palladium exchange-traded funds launched last Friday were met with buying interest, with about 170,000 ounces of metals added in the first two trading sessions, a spokesman for ETF Securities, which operates the funds, said.

“Continued strong ETF investment in 2010 (potentially amplified by the U.S. ETFs) would push the platinum and palladium markets into deficit,” RBS Global Banking & Markets said in a note.

Editing by Walter Bagley

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