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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