Gold inches up on Middle East revolutions

Reuters, Tuesday 1 Mar 2011

Spot gold expected to fall to $1,390 as Middle East turmoil escalates; speculators might influence market later this year. Oil above $112 a barrel

Spot gold edged up on Tuesday as unrest in Libya and the Middle East escalates (Photo: Reuters)

Spot gold edged up on Tuesday as escalating unrest in Libya and the Middle East supported safe-haven demand, though holdings in the biggest gold-backed exchange-traded fund fell to the lowest level in more than nine months.

Forces loyal to Libyan leader Muammar Gaddafi were amassed near the Tunisian border on Tuesday, as the United States said it was moving warships and aircraft closer to Libya, heightening tension in the volatile region.

Spot gold edged up 0.3 percent at $1,414.66 an ounce by 0642 GMT, pushing for a third straight day of gains. It had been moving in a narrow range of just below $6.

The most active US gold futures contract edged down 0.4 percent at $1,415.40.

"There has been some scrap selling and liquidation above $1,405," said Peter Fung, head of the dealing department at Wing Fung Precious Metals in Hong Kong.

"We'll probably see a price range between $1,405 and $1,415."

But even as the political turmoil in the Middle East and North Africa continued to support safe-haven demand, improved economic prospects could weigh on gold prices, traders said.

Gold prices could drop 20 percent later this year and in 2012 as the global economy picks up and as speculators exit the market, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) said.

Holdings in the SPDR Gold Trust dipped to the lowest since mid-May last year in a sign that investors may be switching to stocks and other assets, dealers said.

Spot gold has inched down half a percent so far this year, compared to a 5.6 percent climb in the Dow Jones Industrial Average.

On the macroeconomic front, Chinese manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity.

"The market has been waiting to find more fundamental direction. For example, they are waiting to see if any of the central banks will turn hawkish," a Singapore-based trader said.

Australia's central bank, which decided to keep its main cash rates steady at 4.75 percent as widely expected, said it expected the global economy to continue to expand.

Brent crude rose above $112 a barrel on Tuesday as the ongoing unrest in the Middle East and North America threatened to further reduce crude supplies.

A sustained period of higher oil prices would significantly affect developing economies but is unlikely to derail their strong recovery from the global financial crisis, a senior World Bank economist said.

Separately, the IMF warned extended higher oil prices would hit world growth.

Spot silver hit an intra-day high of $34.11 and eased to $34.08. It struck a 31-year high at $34.30 last week.


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