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Written by: Staff

LONDON, June 7 (Reuters) Gold and silver fell sharply in Europe on Wednesday, as the current steadiness of the dollar triggered speculative liquidation, driving prices to their lowest for several weeks.

''It is all about the dollar, the wider macro-economic concerns and the positioning of (asset allocation) flows,'' Robin Bhar, analyst at UBS said.

Gold fell around two percent, while silver lost 2.5 percent, with the robust dollar underlining the growing belief that U.S. interest rates will rise again later this month, tarnishing the role of precious metals as a hedge against a fall in the U.S. currency.

The dollar was hovering near Tuesday's one-month highs against the yen and six day peaks versus the euro .

Spot gold fell to $616.40 an ounce at one point, the lowest since April 21. It was quoted at $619.00/620.00 an ounce at 1148 GMT, down from $629.80/630.80 in New York on Tuesday.

''It may well test $600/610 now, although there should be physical interest,'' Bhar added.

Silver cracked after falling conclusively under $11.60 an ounce and looks set to sustain further pressure.

''If further dips do not bring consumers and investors back in, a more prolonged correction from the highs might be expected towards $10.75,'' Julia Hamblett, vice-president at Dresdner Kleinwort Wasserstein, said.

Spot silver retreated to $11.35 at one stage, its lowest since March 30, and was recently quoted at $11.42/11.52, down from the late New York quote of $11.83/$11.93 an ounce.

SECTOR GLOOMY IN SHORT-TERM Broker HSBC said in a report that, despite options-related buying, the precious-metals sector looks bearish, facing potentially higher interest rates and a slowing economy.

''Perceived monetary policy is turning progressively against the precious metals. In the last two days, three central bank chiefs and two Fed officials have made statements concerning the need to monitor tackle inflationary pressures.'' On Tuesday, St. Louis Fed chief William Poole was quoted by the Wall Street Journal as saying that a slowing economy on its own might not reduce inflationary pressures.

Gold has declined sharply since hitting a 26-year high of $730 on May 12 as funds and speculators took profits.

Also, oil prices have started to soften, settling towards the $72 a barrel level after Iran said world powers made positive proposals to end a dispute over its nuclear programme, easing fears over potential supply disruption from the Middle East. [nSP41936] Traders said gold was likely to trade in a wider-than-usual range as long as speculation over U.S. interest rate policy persists.

Longer-term views were more positive. At the Reuters Global Mining and Steel Summit [nTOPMIN], the chief executive of Goldcorp said that the gold price could pass $800 and was unlikely to drop below $500 for a ''long, long time''.

[nN06319619] Spot platinum was at $1,225/1,233, down from $1,231/1,239 in New York, while palladium was at $327/$332, down from $344/349.


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