Gold hits one-week high as dollar falls vs euro

By Frank Tang

NEW YORK (BestGrowthStock) – Gold rose to a one-week high on Wednesday as the dollar fell sharply against the euro, but news that Europe could reach a comprehensive package in the next two months to solve the bloc’s debt crisis put a damper on safe-haven demand.

Analysts said bullion could face strong resistance at its 50-day moving average near $1,383 an ounce. Gold has been largely rangebound after notching its biggest weekly loss in seven months last week due to a more positive U.S. economic outlook.

The dollar fell against the euro for a third day, benefiting gold, though traders said euro’s gains were short-lived, with a Portuguese debt sale failing to stem fears on the funding prospects of peripheral euro zone countries.

“Gold is being held because of uncertainty, and more than anything because of the fear factor that has been evident since the financial crisis,” said Credit Agricole analyst Robin Bhar.

“As the economy strengthens, as financial markets normalize, and in the absence of any further shocks… that is one driver for gold that will start to unravel,” Bhar said.

Major euro zone states are working on a comprehensive medium-term package to solve the bloc’s debt crisis and could reach agreement in the next two months, Germany’s finance minister said.

Spot gold rose 0.5 percent to $1,386.95 an ounce at 3:19 p.m. EST, having earlier hit a high at $1,388.90. U.S. gold futures for February delivery settled up $1.50 an ounce at $1,385.50.

Silver rose 0.4 percent to $29.61 an ounce.

COMEX gold futures volume was in line with its 30-day average, but silver was about 25 percent lower, preliminary Reuters data showed.

While a possible euro zone rescue package removed some of the need among investors for safe-haven assets, this persistent concern over the indebtedness of smaller euro zone economies is likely to continue to support gold, analysts said.

“With the euro still deep (in the) debt crisis and physicals using every dip to buy the metal on anticipation of an extended rise, there is little downside possibility for gold, at least in this quarter,” said Pradeep Unni, senior analyst at Richcomm Global Services.

“Weakness in the dollar and rising oil will add to the…reasons to hoard gold.”

U.S. crude oil futures rose after a government inventory report showed crude stocks fell more than expected last week.

U.S. crude also rose to within a few dollars of its recent more than two-year high. Rising oil prices can fuel demand for commodities as an asset class, lifting gold.

50-DAY AVERAGE IN FOCUS

On charts, gold on Wednesday largely traded below its 50-day average, which has tended to define the metal’s bull move since mid-September of last year, independent investor Dennis Gartman said. (Graphic: http://link.reuters.com/neq95r)

“For the first time in a very long while, we shall inject a note of caution to owning gold in any form…We shall recommend ‘shoring up’ stops to protect what we have gained over the past many months,” Gartman said.

Demand for gold to back exchange-traded funds eased off further, meanwhile, with holdings of the largest, New York’s SPDR Gold Trust, slipping just over 1 tonne on Tuesday. Its holdings have declined more than 9 tonnes since the start of the year.

Platinum rose 1.8 percent to $1,797.74 an ounce, while palladium climbed 3.1 percent to $806.22.

(Reporting by Frank Tang; Additional reporting by Jan Harvey in London; Editing by Marguerita Choy)