Gold rises further on flat dollar, Chinese inflation
FRANFURT (July 9) Gold rose for a second consecutive session on Tuesday, as the dollar held below three-year highs and Chinese inflation data boosted the metal’s appeal as a hedge against rising prices in the world’s second-biggest buyer of the metal.
Data on Tuesday showed China’s annual consumer inflation accelerated more than expected in June.
"The numbers out of China were very helpful for the metal’s demand, as these indicate an increase in inflation rates, against which gold is seen as a hedge," MKS Capital head of trading Afshin Nabavi said.
Spot gold rose 1.5% to $1,253.76 an ounce by 9.10am GMT, and was on track for the biggest gains in seven sessions. Comex gold climbed $17.20 to $1,252.30 an ounce.
The dollar eased from a three-year high reached on Monday, although its broad uptrend was seen intact as the market positions for when the US Federal Reserve will start to slow its stimulus.
The tapering would support a rise in interest rates and bolster the dollar, making gold less attractive.
Bullion has fallen nearly 10% since Fed chairman Ben Bernanke said in June the economy was recovering strongly enough for the US central bank’s $85bn monthly bond-buying stimulus to be reduced as soon as later in 2013.
It came under additional pressure late last week as a strong US jobs report showed the employment market remains on track, before recovering.
Traders also attributed some of Tuesday’s gains to technical buying once prices crossed $1,245, the level at which gold stood before nonfarm payroll data came out last Friday. The technical buying also forced investors to cover short positions, which they had increased in the expectation of further losses.
"We breached key technical levels overnight, which ignited some short covering, pushing the metal higher," Mr Nabavi said.
"Conditions are now quieter but we can see more short-covering throughout the day."
Investors are now focusing on the Federal Open Market Committee’s minutes — records from the Fed’s June meeting — due for release on Wednesday.
Investor sentiment
Hedge funds and money managers raised their bullish bets in gold and silver futures and options in the week to July 2.
Liquidation in metal-backed exchange-traded funds (ETFs), however, continued on Monday. Holdings in the SPDR Gold Trust, the world’s largest gold ETF, fell to the lowest since February 2009, down 1.56% to 946.96 tonnes.
"The unwound gold positions increase gold supply and put gold under downward pressure, which in turn triggers more liquidations. We expect the spiral of liquidation to extend to 2014," said UOB Kay Hian Research senior metals and mining analyst Helen Lau.
Ms Lau expects gold prices to decline 20% year on year to $1,332 in 2013, and another 10% in 2014.
Silver rose 1.5% to $19.32/oz. Platinum was up 0.3% to $1,361.99/oz and palladium gained 0.2% to $696.25/oz.
