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Gold hits $881 but investors cautious
Gold rose more than one per cent yesterday on bargain hunting and record-high oil that lifted bullion's appeal as an inflation hedge, but investors remained cautious after a recent sell-off to four-month lows.
- Reuters
- Published: 00:36 May 7, 2008
London: Gold rose more than one per cent yesterday on bargain hunting and record-high oil that lifted bullion's appeal as an inflation hedge, but investors remained cautious after a recent sell-off to four-month lows.
The precious metal was at $881.10/882.30 an ounce at 1505 GMT, against $871.15/872.55 in New York late on Monday but still well below a record high of $1,030.80 hit on March 17.
"We saw a fairly big retracement last week and there was a feeling that probably it was overdone. There has been some buying as support is coming back in," said Daniel Hynes, metals strategist at Merrill Lynch.
"But it doesn't look strong enough to really kick-start a sustained upward trend. The effect of oil is less than we have seen in the past. It may continue to trade in a fairly tight range and struggle to push above $900 in the short term."
Support
The bullion market got some support from the dollar, which extended declines against the euro and a basket of six major currencies for a second day after earnings results from Fannie Mae came in weaker than expected.
Fannie Mae, the largest provider of US home financing, reported its third straight quarterly loss as the US housing crisis took another turn for the worse in the first quarter. For more details, click.
A weaker dollar makes gold cheaper for holders of other currencies and often lifts bullion demand. The metal is also generally seen as a hedge against oil-led inflation.
Oil stood firm after setting a new record high above $121 a barrel, the latest spurt in an advance that has seen prices double over the past 12 months.
"It's playing up and down and the market is a bit confused here," said Frederic Panizzutti, metals analyst at MKS Finance.
Despite record high oil prices and a weaker dollar, it appeared that gold was not taking much direction from these factors, he said, adding gold's correlation with oil and the dollar had weakened.
US gold futures for June delivery rose $8.90 an ounce to $883.00 an ounce.
But some analysts said gold was expected to gain further.
"Seasonally strong physical demand should continue to provide a good base for gold in the coming sessions," said James Moore, metals analyst at TheBullionDesk.com.
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