Gold steady; euro zone contagion fear weighs

SINGAPORE: Gold traded steady on Thursday after a 1 percent drop in the previous session, as markets remain jittery over the euro zone debt crisis while the bloc's political wrangling continues.

France and Germany clashed over whether the European Central Bank should intervene more forcefully to halt the euro zone's accelerating crisis, while the bond market turmoil is spreading across Europe, making investors increasingly nervous.

Gold has been tracking equities and other commodities in recent months, as investors are forced to sell their profitable gold positions to cover losses elsewhere during such economic and political turbulence.

"The US dollar is strong and there does not seem to be a good solution for Europe," said a Hong Kong-based dealer. "The technical picture looks weak and gold is probably not going to break above $1,800 soon."

Technical analysis suggested spot gold could fall into the range of $1,728 and $1,735.69 during the day, said Reuters market analyst Wang Tao.

Spot gold edged up 0.2 percent to $1,765.20 an ounce by 0713 GMT, off a one-week low of $1,753.39 hit on Wednesday.

US gold lost 0.4 percent to $1,766.60.

Demand for gold rose by 6 percent to a 1-1/4-year high in the third quarter, driven by central bank buying and European demand for bullion against the backdrop of the escalating euro zone crisis, the World Gold Council said.

Although spot gold prices declined 1.5 percent so far this week, holdings of the SPDR Gold Trust gained 8.69 tonnes, on course for a fourth week of consecutive rises.

SILVER TO STAY STRONG

The average price of silver could rise to $45 an ounce in 2012, from $35.66 this year, as investment demand is expected to support it, said metals consultancy GFMS, a unit of Thomson Reuters.

"The main driver of the price remains investment demand, which has absorbed the substantial market surplus ... that has characterised the silver market in 2011," GFMS said.

World investment demand for silver, including coins and metals, is expected to reach 278 million ounces this year, the second highest volume after 2010. Further gains are expected for 2012, it added.

Global fabrication demand for silver is forecast to grow 4 percent in 2011, supported by rising industrial demand despite weaker global economic backdrop, it said.

Spot silver rose half a percent to $33.83 an ounce, down 32 percent from a record high of $49.51 hit in late April, but still up 9.6 percent so far this year.

Copyright Reuters, 2011