Gold Rises Due To Physical Demand, Weaker Dollar

Gold rose on Monday, extending its gains after its strongest week in a month, as the dollar slipped and European stock markets steadied, while physical buying remained strong in Asia.

Volumes were likely to remain thin throughout the day as both Britain and the United States had public holidays.

Spot gold rose two per cent last week, mostly benefitting from a lower dollar and a shift of funds out of equities. It was up 0.5 per cent to $1,392.71 an ounce by 1012 GMT.

US gold futures for June delivery rose 0.4 per cent to $1,391.80 an ounce.

Gold is still down nearly 17 per cent this year, however, after last month’s rout pushed prices down to a more than two-year low of $1,321.35. The drop was caused by worries about central bank sales and fuelled by a drop below $1,500 an ounce.

“Gold is holding around the levels seen at the end of last week, as there are few factors that are balancing each other out at the moment,” Commerzbank analyst Daniel Briesemann said.

“On the one side you have continued ETF (exchange-traded fund) outflows and speculators cutting bullish bets on COMEX, while on the other hand the metal is finding some support from continued demand for coins and bars amongst retail investors and ongoing purchases by central banks from emerging countries, which kept buying in April.”

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.24 per cent to 1,016.16 tonnes on Friday, their lowest since mid-February 2009. The fund held 1,350.50 tonnes at the beginning of 2013.

Meanwhile, speculative net long positions – the difference between bullish and bearish contracts – held by COMEX gold futures and options hedge fund traders, fell to 35,686 lots in the week to May 21, the lowest level since July 2007, while short positions continued to rise, a report by the Commodity Futures Trading Commission (CFTC) showed on Friday.

Traders said that the expiry of June COMEX options, on Tuesday, may leave the market around current levels in coming sessions.

“COMEX option expiry tomorrow and good sized open interest at $1,400 will likely see the market sticky around here for at least the next few sessions,” MKS Capital senior trader Alex Thorndike said in a note.

ASIAN BUYING

Physical demand for the metal remained strong in Asia, where premiums for gold bars hit a record high amid tight supplies last week.

Lower spot prices over the past month have attracted buyers mainly in China, the world’s second biggest consumer of the precious metal after India, traders said.

“Since prices have been going down, we have seen almost 300 per cent increase in sales,” said Gregor Gregersen of Silver Bullion Pte Ltd, a gold and silver dealer in Singapore.

Data from the International Monetary Fund (IMF) showed that Russia, Turkey and Kazakhstan were among the central banks buying gold in April, despite the metal’s price fall.

In wider markets, the dollar index dipped 0.2 per cent, while European shares steadied as markets were awaiting more macro economic data out of the United States to assess whether the Federal Reserve will slow its $85-billion monthly bond purchases in coming months.

Elsewhere, silver rose 1.1 per cent to $22.63 an ounce, platinum was up 0.4 per cent to $1,457 an ounce and palladium edged up 0.6 per cent to $728.97 an ounce.