Gold price steady as dollar continues to show weakness

Gold steadied on Thursday, drawing support from the dollar's weakness against the euro and investor risk appetite that has helped boost assets across markets, but prices were capped as players grew wary of high price levels.

Gold hit a two-month high earlier in the week on the dollar's drop and a broad rally in commodities and equities, as hopes for an economic recovery encouraged funds to pour money into a wide range of assets.

Traders said investors may become cautious about pushing prices higher given the elevated market levels, as well as physical demand remaining weak and gold losing its appeal as a safe haven as sentiment about the economy improves.

"We'll see further weakness in the dollar which is very supportive to the gold market, but in 2009 we have seen gold struggle to maintain its momentum when it got to the high $900s to $1,000," said Toby Hassall, an analyst with CWA Global Markets in Australia.

"I wouldn't be surprised if the market fails to break above $1,000," he said.

Spot gold stood at $962.50 per ounce as of 0520 GMT, slightly up from New York's notional close of $961.95.

U.S. gold futures for December delivery eased 0.1 percent to $964.90 an ounce, compared with $966.30 an ounce on the COMEX division of the New York Mercantile Exchange.

As optimism about the economy grows, other products such as silver, copper and oil have become a focus due to their exposure to industrial use, Hassall said.

"As things are getting better and money flows into riskier assets, funds are looking to get exposed to industrial demand. Gold has been out of focus, with fear moving out of the market as the volatility index fell," he said.

The dollar stayed near its 2009 lows against the euro on Thursday on hopes a slower pace of U.S. private job losses in July hinted at a gradual improvement in the economy.

The impact on gold from the U.S. nonfarm payrolls data due on Friday will depend on how currencies react, traders said. With the recent rally in markets based on expectations the U.S. economy is improving, a negative surprise could erode some of that optimism.

Gold futures dipped $3.40 an ounce on Wednesday as weaker equities prompted funds to consolidate recent profits.

U.S. stocks slipped on Wednesday as the market took the weaker services sector and private payrolls data as cooling recent optimism the recession was retreating, but the market finished off its lows as investors ventured into riskier financial shares.

Asian stocks fell on Thursday, led by a more than 2 percent drop in Shanghai stocks on worries about adjustments to monetary policy that might impact market liquidity.

Base metals also fell sharply on Thursday after rising to multimonth peaks in previous sessions.

Physical demand is generally weak and the fairly high price of gold in a historic context might limit the market impact from an expected pick-up in Indian demand this month, traders said.

Indians have started buying gold jewellery and wholesalers are stocking up against anticipated price rises as the busy season gets under way in the world's largest bullion consumer. India, accounting for over 20 percent of global demand for gold jewellery in 2008, celebrates several Hindu festivals this month, when demand for bullion usually picks up.

The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings stood at 1,072.87 tonnes as of August 5, unchanged since July 29.


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Gold tops $970 first time in twp months; other metals lower

Gold futures rose Thursday, briefly topping $970 an ounce for the first time in two months, as central banks in Europe continued to loosen their monetary policy, raising gold's value as a hedge against potential inflation.

The Bank of England boosted its quantitative-easing program by an unexpectedly large 50 billion pounds ($84 billion) Thursday. On the same day, the European Central Bank left its key lending rate unchanged at a historic low of 1%, as expected. See Currencies.

On the Comex division of the New York Mercantile Exchange, August gold futures were last up $1.50, or 0.2%, at $965.70 an ounce, after hitting $971.10 earlier. The more active December contract rose 0.2% to $967.90 an ounce.

"Currency movements and short-term speculative interest have become the main drivers of prices, as longer-term investment buying has taken a back seat for the time being," said Natalya Naqvi, an analyst at Barclay's Capital.

Demand for exchange-traded funds remained sluggish. Holdings in SPDR Gold Trust(GLD 94.70, -0.08, -0.08%) , the biggest gold ETF, stood at 1,072.87 metric tons Wednesday, unchanged for a fifth session, according to the fund.

"While we remain broadly bullish, gold may struggle to gain significantly in the short term, as rallies above $965 are expected to see a pickup in metal flows back into the market," said James Moore, an analyst at TheBullionDesk.com.

"The yellow metal may look to consolidate ahead of tomorrow's payrolls reading as investors gauge the health of the U.S. jobs market within the broader macroeconomic picture."

In gold miners, Gold Fields Ltd.(GFI 12.61, +0.08, +0.62%) , the worlds' fourth-biggest gold miner, said Thursday it's gold output rose 4% in the second quarter to 906,000 ounces.

In economic news, first-time claims for state unemployment benefits declined by 38,000 to 550,000 last week, the Labor Department reported. The four-week average of new jobless claims dropped to 555,250, the lowest level since January. See full story.

Investors also awaited Friday's monthly jobs report.

In currency trading, the dollar remained higher against most of its major rivals, rebounding from its lowest level in 10 months. The dollar(DXY 77.10, +0.48, +0.62%) stood at 78.001, up from 77.515 late Wednesday.

Other metals were lower Thursday. September copper fell 8.75 cents, or 3.1%, to $2.726 a pound.

September silver slid 8 cents, or 0.5%, to $14.68 an ounce. October platinum lost $16.10, or 1.3%, to $1,277 an ounce, while September palladium slid $6.10, or 2.2%, to $273.10 an ounce.

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