Gold bounces on euro; weak commodities weigh

24. Feb. 2010

SINGAPORE - Gold regained some ground on Wednesday as the euro bounced higher against the U.S. dollar and bargain hunters resurfaced, but weakness in other commodities is likely to cap gains as investors cut exposure to risky assets.

Investors, who ditched gold in favor of the dollar after the release of poor U.S. confidence data, are shifting their focus to Federal Reserve Chairman Ben Bernanke, whose testimony before the Congress on Wednesday and Thursday may set the tone for the U.S. currency.

Spot gold was at $1,106.20 an ounce by 0622 GMT, up $3.25 from New York's notional close on Tuesday, when safe-haven dollar jumped after U.S. consumer confidence sagged to a 10-month low and ignited worries about demand for commodities.

Low volumes meant that bullion was prone to sharp movements but dealers noted buying interest from jewelry makers in parts of Asia. Gold was around 2 percent below a 1-month high around $1,130 an ounce hit on Monday.

"It looks like there's some buying around these levels. But Bernanke has a speech tonight and tomorrow, so nobody wants to commit too much," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think for this week trading is still range-bound at $1,100 to $1,130. Sentiment is flat. It's neither bullish nor bearish," he added.

U.S. gold futures for April delivery added $3.8 an ounce to $1,107 an ounce after falling almost $10 in late trade on Tuesday. The contract rallied to a 1-month high on Monday.

The euro firmed to $1.3544 but the currency was still under pressure from an unexpected dip in the German Ifo index of business sentiment, lower French household spending data as well as weaker Italian consumer confidence.

Stocks .SPX and commodities .CRB dropped, pulling down higher-yielding currencies like the Australian and New Zealand dollars after data showed U.S. consumer confidence fell in February.

Oil, cocoa and sugar had tumbled on Tuesday, leading commodities lower, on weak U.S. consumer confidence data and as German business sentiment fell too. A strong dollar also put pressure on commodities denominated in the U.S. currency.

Despite some early buying, activity in the physical market had yet to pick up in Asia after the Chinese New Year celebration in the middle of February.

"I think they will restart the business later this week. If the price stays at these levels, we could see some improvement in demand," said a dealer in Hong Kong.

"But I guess movements in gold have been closely related to the dollar lately," he added.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,106.987 tonnes as of February 23, down 0.914 tonnes from the previous business day.

China is unlikely to buy 191.3 tonnes of gold being offered for sale by the International Monetary Fund, the China Daily reported on Wednesday, citing an unnamed official from the China Gold Association.
[Reuters]