Gold, copper fall on higher dollar; focus on europe

Gold and copper prices fell on Monday as the dollar rallied, but European policymakers’ failure to soothe fears of a Greek default and contagion to other euro zone countries will support prices as investors to seek refuge in the precious metal.

Spot gold [GCCV1 1782.90 4.00 (+0.22%) ] was bid at $1,788.80 a troy ounce from $1,810.73 late in New York on Friday. The precious metal hit a record high of $1,920.30 on Sept. 6.
Meanwhile, copper prices slid to their lowest levels of 2011, as investors cut exposure to assets perceived as risky in the wake of growing jitters about the euro zone debt crisis and the lingering threat of a default for Greece.

Three-month copper on the London Metal Exchange hit $8,332 a metric, its lowest since late November last year. The metal used in power and construction traded at $8,335.50 a ton, from Friday’s close of $8,696 a ton. (Get the latest copper futures prices here.)

A stronger U.S. currency makes dollar-denominated metals more expensive for holders of other currencies. Gold has so far on Monday ranged between $1,827.36 and $1,788.99 an ounce.

The cancellation of a visit by Greek Prime Minister George Papandreou to the U.S. to chair an emergency cabinet meeting at home and a regional election defeat for German Chancellor Angela Merkel added to perceptions of a worsening crisis.

“Given ongoing problems in the euro zone and the financial system, safe-haven demand should remain strong,” said Carsten Fritsch, analyst at Commerzbank.

European Union finance ministers at meetings ending on Saturday broke no new ground in dealing with the crisis and made no decision on whether to give more firepower to the 440 billion euro ($598.8 billion) bailout fund as suggested by U.S. Treasury Secretary Timothy Geithner.

Markets are expected to focus on a policy meeting of the U.S. Federal Reserve [cnbc explains] on Tuesday and Wednesday. Any announcement of further stimulus for the economy could help buoy gold prices.

“Despite the FOMC meeting taking center stage this week, Europe is still likely to hold the market’s attention as International Monetary Fund [cnbc explains] /EU inspectors will be in Greece,” UBS said in a note.

Also a focus for the gold market is the London Bullion Market Association’s conference in Montreal, Canada.

Gold prices are expected to hit $2,200 by 2012, supported by the economic uncertainties in Europe and the U.S., said the chief executive of AngloGold Ashanti , the world’s third-largest gold producer.
“The European sovereign debt crisis remains unresolved, underpinning investment demand, and we see an extended period of negative real interest rates,” Morgan Stanley said in a note.

Low or negative interest rates mean there is no opportunity cost to holding gold as major currencies such as the dollar, yen or sterling yield little or no interest.

The Federal Reserve, facing rising global financial strains and recession fears, is poised to increase downward pressure on longer-term interest rates next week in a bid to help the sputtering U.S. recovery.

“Beyond near-term weakness, we remain positive on gold as uncertainty heightens over Europe and the near-term outlook for the U.S., as well financial market instability,” Barclays Capital said in a note. “(Gold’s) downside has been cushioned by physical demand and looks to be increasingly supported amid the seasonally strong period for demand.”

Analysts expect gold to be supported at $1,800 an ounce, a level at which Asian buyers have been seen returning to buy. On the upside, gold is likely to zigzag up towards $1,930 an ounce, with an immediate target at $1,860, said Reuters market analyst Wang Tao.

Silver [SICV1 39.62 0.457 (+1.17%) ] tracked gold lower, dipping to $39.46 an ounce from $40.60 late on Friday. Platinum [PLCV1 1776.00 4.00 (+0.23%) ] was at $1,782.40 from $1,804.83 and palladium [PAZ1 719.45 7.35 (+1.03%) ] at $714.00 from $727.05 an ounce.

Platinum and palladium have recently come under pressure from expectations of weaker demand from the auto industry, which uses precious industrial metals to make catalytic converters.

China Gold Demand May Rise 10%: WGC

Chinese gold demand could rise 10 percent, or around 70 tons, this year as consumers choose the metal as a form of wealth protection, the World Gold Council said on Monday.

China’s gold demand stood at around 706 tons last year, according to the WGC, but burgeoning demand for the precious metal has the scope to lift that significantly.

“If you look at gold investment and jewelry demand, that could increase by 10 percent,” the WGC’s Far East managing director Albert Cheng told Reuters on the sidelines of the London Bullion Market Association annual conference.

“We are looking at about 10 percent, that’s about 70 tons. That is not an insignificant figure,” he said. “I never want to forecast those kinds of things, but a 10 percent overall (rise in) gold demand in China is not impossible for this year.”

With the value of traditional investments such as stocks and property currently volatile, Chinese investors are choosing gold as a store of wealth, Cheng said.

Two years ago, the WGC forecast that Chinese gold demand could double in the following decade. China is currently the world’s second largest consumer of gold behind India, with the two markets accounting for a huge slice of bullion offtake.

Record-high gold prices, which peaked at above $1,920 an ounce earlier this month, have done little to dampen buying. “India and China in the second quarter (of 2011) accounted for 54 percent of worldwide consumption. So any percentage increase in going to be mind-blowing,” Cheng said.

Source Reuters

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Posted by VBN on Sep 20 2011. Filed under Gold. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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