LONDON: Gold rose above $1,200 an ounce on Wednesday, boosted by rebounding oil prices and investor repositioning, though strength in the dollar and optimism about the US economy kept gains in check.
Bullion received some help from inflows of 2.4 tonnes to SPDR Gold Trust, the world's top gold-backed exchange-traded fund. Despite the first inflow in two weeks, the fund's holdings remain near a six-year low, underlining bearish sentiment in the market. "There is some position reshuffling due to the level of volatility we have seen in the past few sessions," Julius Baer analyst Carsten Menke said.
"I wouldn't read too much into it, though, because the key drivers in the medium to longer term are the recovering US economy and expected rate hikes next year, which should dent investor demand for gold." Spot gold was up 0.4 percent at $1,203.87 an ounce at 1057 GMT, having fallen 1 percent in the previous session on a bouncing dollar and diving crude prices.
Gold gained about 10 percent in the first half of the year, helped by geopolitical tensions and disappointing US economic data, before surrendering to a rallying dollar and expectations of interest rate rises. Investors would be encouraged to withdraw more money from non-interest-bearing assets such as gold if rates rise sooner than expected.
Wednesday's gains were kept in check by a firmer dollar, which rose to its highest in more than 5-1/2 years against a basket of currencies, while US yields and European shares also increased. "We expect the gold price to remain under pressure initially in the first half of next year on the back of growing speculation about increasingly imminent interest rate hikes in the United States," Commerzbank said in a note.
It sees gold falling to $1,125 on average in the second quarter of 2015 but expects it to climb to $1,250 by the end of the year as the pressure abates. Platinum rose 1 percent to $1,223.40 an ounce.
Silver was up 0.4 percent at $16.49 an ounce and palladium climbed 1 percent higher to $806.50 an ounce.
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