Gold holds near $1,535/oz ahead of ECB

By Jan Harvey

LONDON, June 9 (Reuters) – Gold held near $1,535 an ounce in Europe on Thursday, little changed from the previous session, as traders took to the sidelines ahead of the European Central Bank meeting later in the day.

Spot gold was bid at $1,535.70 an ounce at 1122 GMT, against $1,536.80 late in New York on Wednesday. U.S. gold futures for August delivery fell $1.90 to $1,536.80.

The ECB is expected to leave interest rates on hold for the time being but to indicate a rise is on the way in July. It is unlikely to unveil signficant detail of a new bailout package for heavily-indebted Greece, analysts said.

“Uncertainty relating to concerns about Greece and the deceleration of economic growth has increased recently,” said BNP Paribas analyst Anne-Laure Tremblay.

“Nevertheless, we expect today’s ECB press conference to signal a 25 basis point hike at the July meeting, supported by upward revisions to (2011) inflation and growth projections.”

Expectations that euro zone interest rates will climb faster than those in the United States supported the euro, which rose 0.25 percent versus the dollar in early trade, reversing the previous session’s losses.

Sluggish U.S. economic data has boosted expecations that U.S. interest rates will stay at record lows, pressuring the dollar and weighing on benchmark Treasury yields. The end of the second round of quantitative easing measures in the United States this month could lead growth to stall once more.

Dollar weakness tends to lift gold prices, as it makes dollar-priced assets cheaper for other currency holders and boosts the precious metal’s appeal as an alternative investment.

 

EURO ZONE STILL SHAKY

In the medium term, ongoing concern over the financial health of the euro zone is set to support interest in gold as a haven from risk.

Greek bond yields rose on Thursday after European officials said more steps were needed to meet deficit cutting targets, with no clarity over how policymakers intend to resolve the country’s debt problems.

The EU, ECB and IMF mission to Greece said in a report obtained by Reuters on Wednesday that more aid for Greece could not be released until it corrected the under-financing in its adjustment programme.

These simmering concerns could shake gold out of its current summer lull, analysts said.

“Given the event risk surrounding Greece, the end of QE2 and the potential for an extended economic soft spot… these rangebound conditions are unlikely to last,” UBS said in a note.

Physical gold demand in major consumer Asia stalled as prices held at elevated levels, although little scrap gold is being returned to the market, dealers said.

“Scrap is not hitting (the) market as the general belief is that the price trend is still on upside,” said an official at a private bullion importing bank in Mumbai.

Silver prices were at $37.04 an ounce against $36.79, while platinum was at $1,828.74 an ounce against $1,819.50. Palladium was at $806.75 an ounce from $799.18, having touched a three-month high of $807.50 earlier this week

Data on Thursday showed car sales numbers from Asia, usually a rare bright spot in the car sales market last year, were relatively soft in May.

The official China Association of Automobile Manufacturers said on Thursday that Chinese car sales dipped last month for the first time in more than two years, by 0.1 percent. Car sales in India rose 7 percent in May, their slowest pace of growth in two years. The latest update of China’s vehicle trade-in incentives will have limited impact in boosting auto demand in the world’s largest market, Nomura said on Thursday. (Reporting by Jan Harvey; editing by Anthony Barker)