Gold drops 1 percent as market lacks fresh impetus

By Humeyra Pamuk

LONDON (BestGrowthStock) – Gold dropped 1 percent on Friday as the dollar moved back into positive territory and traders said bullion needed fresh investment demand to extend its recent rally and test its record high.

Bullion touched its highest in two months above $1,262 an ounce this week on renewed worries about the European banking sector, but gave up some gains to profit-taking and as upbeat macro data on Thursday soothed some investor fears.

Spot gold was at $1,242.85 an ounce by 1314 GMT (9:14 a.m. EDT), about 2 percent away from its all-time high of above $1,264 an ounce struck in June and versus Thursday’s $1,248.27 an ounce. Bullion fell to a session low of $1,236.55 an ounce.

“There hasn’t been enough genuine demand around,” said

Simon Weeks, head of precious metals at the Bank of Nova Scotia. “The ETF’s are struggling to gain any decent investment and the physical market’s gone quiet,” he said.

“It was more of a question of being up there on sentiment rather than demand and the market’s not been able to sustain it,” he said, adding that in the near term a range between $1,225 to $1,245 an ounce could be possible.

The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P: ), said its holdings slipped to 1,293.531 tonnes by Sept 9 from 1,294.442 tonnes by Sept 3. The holdings hit a record at 1,320.436 tonnes on June 29.

Gold jewelry sales in Italy, the European Union’s top market by consumption, fell 23.5 percent in the second quarter and are likely to fall for the full year, a World Gold Council official said on Friday.

Bullion did not see much support from the currency markets, where the dollar (.DXY: ) was slightly higher in volatile trade, making bullion more expensive for non-U.S. currency holders.

UPWARD TREND IN PLACE

But still many analysts bet on gold because its safe-haven appeal will remain due to lingering worries surrounding the health of the global economy. On Friday, European shares retreated from four-month highs. (.EU: )

“The upward trend is still very much in place,” said analyst Daniel Brebner at Deutsche Bank. “We have seen marginal improvement in risk appetite but worries about European sovereign debt…that’s kept investors cautious,” he said.

“It’s just a matter of time before we hit $1,300 an ounce,” Brebner added.

U.S. gold futures for December delivery was down $7.7 at $1,243.2 an ounce. The all-time high on the December futures chart sits at $1,270.60 per ounce.

Interest from Asian central banks in bullion was another factor that supported the prices in the long-term, analysts said, after The International Monetary Fund said it sold 10 tonnes of gold to the central bank of Bangladesh this week.

Industry experts saw more central banks to follow.

“Gold is one of the few asset classes that is almost universally permissible by the investment guidelines of emerging countries’ central banks,” said Natalie Dempster, Director, Government Affairs at the World Gold Council.

Spot silver was at $19.84 an ounce from $19.79 late in New York on Thursday. It touched $20.14 an ounce earlier this week, its highest since March 2008.

Deutsche Bank analysts said silver could outperform the precious metals complex. “Given our conviction that central bankers will lean heavily toward an inflationary outcome rather than deflationary, we expect that precious metals such as silver or palladium could outperform in a precious metals context.”

Palladium was at $520.75 an ounce versus $518.73 an ounce while platinum was at $1,551 an ounce compared with Thursday’s $1,548.28 an ounce.

(Additional reporting by Lewa Pardomuan in SINGAPORE; editing by Keiron Henderson and Alison Birrane)

Gold drops 1 percent as market lacks fresh impetus