Gold firms as dollar slides to one-month low

By Jan Harvey

LONDON, June 7 (Reuters) – Gold rose back to $1,550 an ounce on Tuesday as the dollar hit a one-month low against a basket of currencies, hurt by warnings from a Chinese foreign exchange official of the risks of excessive dollar holdings.

Spot gold was bid at $1,546.84 an ounce at 1150 GMT, against $1,543.05 late in New York on Monday. U.S. gold futures for August delivery rose 90 cents an ounce to $1,548.10.

The dollar fell after the head of the international payment department at China’s foreign exchange regulator said Beijing should guard against risks from excessive holdings of dollar denominated assets, which added to an already weak outlook for the greenback.

The U.S. currency has already struggled this year against expectations the Federal Reserve will keep rates low for a protracted period to safeguard economic growth.

“This last move this morning from the low $1,540s to almost $1,550 is mainly on the back of dollar weakness, which has been consistent since Asia came in this morning,” said Standard Bank analyst Walter de Wet.

“We think we’re going to break above $1,550 and test the all-time highs,” he added. “Some of that is on expectations of more euro strength relative to the dollar following the ECB meeting on Thursday. We think the ECB is going to be fairly hawkish.”

Gold tends to have an inverse relationship to the dollar, because it becomes cheaper for holders of other currencies when the U.S. unit weakens, and it is sometimes bought as an alternative asset.

Expectations the European Central Bank will be quicker to raise interest rates than the Federal Reserve has led the euro to rise nearly 10 percent relatively to the dollar this year.

 

BERNANKE SPEECH AWAITED

U.S. stock markets’ fall to 2-1/2 month lows after last week’s weaker-than-expected non-farm payrolls data is supporting expectations for an extended period of record low interest rates in the United States.

Fed Chairman Ben Bernanke’s speech later on Tuesday on the U.S. economic outlook will be closely watched for clues as to future policy. Bernanke will be speaking at 1945 GMT (3:45 p.m.) in Atlanta.

Physical gold demand is also holding up strongly despite near-record prices, analysts said, particularly in the Asian markets, where appetite for gold has typically been sharpest.

UBS analyst Edel Tully said in a note that purchasing in the world’s biggest gold market, India, was becoming less seasonal.

“Last week… our sales to the region were somewhat above average – not spectacularly so, but in the past we would have expected gold sales to be running well below average at this time of year, particularly with the gold price above $1,500,” she said. “As gold enters what has traditionally been its season of weakest physical demand, this is positive news.”

Precious metals consultancy GFMS meanwhile said on Tuesday it expected gold, silver, platinum and palladium prices to retain upside potential in 2011, with negative real interest rates remaining the principal driver.

Silver was at $37.30 an ounce against $36.73, tracking gains in gold.

Austria-based hedge fund Superfund on Tuesday said it expected silver to retain its status as a star performer among precious metals in the next couple of years due to its leverage to gold and favourable technical outlook.

Platinum was at $1,819.49 an ounce against $1,805.30, while palladium was at $801.90 against $784. Palladium prices earlier hit three-month highs at $807.22 an ounce, with traders reporting buying of the metal for exchange-traded funds. (Editing by James Jukwey)