Business | Markets
Gold prices drop as greenback bounces from one-month low
Gold slipped from the five-week high it hit earlier in Monday's session, as the dollar bounced back from a one-month low against a basket of currencies.
- Reuters
- Published: 23:37 June 30, 2008
London: Gold slipped from the five-week high it hit earlier in Monday's session, as the dollar bounced back from a one-month low against a basket of currencies.
Firm oil prices, which are holding at record highs they touched this morning, are continuing to support buying of the precious metal as an inflation hedge, however.
Gold was at $928.10/929.10 an ounce at 1343 GMT, up from $927.20/928.20 an ounce late in New York on Friday. Earlier it touched a session high of $934.55 an ounce, its firmest level since May 22.
"The dollar has come back, [and] gold has made good gains in the last couple of days, so we would expect to see it lightening up a tad," said BNP Paribas analyst David Thurtell.
The dollar, which wilted last week after the US Federal Reserve adopted a less hawkish tone than expected on interest rates, slid to a one-month low on Monday, battered by weak equities, strong oil and weak US consumer confidence.
However, it later bounced back to trade 0.2 per cent higher against the euro on the day, supported by month- and quarter-end position squaring, traders said.
In morning trading in New York, the euro was 0.2 per cent lower at $1.5754 after earlier hitting a three-week high of $1.5836.
Analysts said that a break of technical resistance around $1.5860 could open the door for a move above April's record highs around $1.6018.
The dollar earlier hit a month-low 72.041 versus a trade-weighted basket of six major currencies. The index last traded 0.1 per cent higher at 72.381.
The greenback was lower against the the Japanese yen, feeling the pinch of increased risk aversion, record oil prices and an unfavourable interest rate outlook compared with the euro zone. The dollar traded 0.4 per cent lower at 105.70 yen.
A firmer dollar tends to pressure gold, which is often bought as a hedge against weakness in the US currency. A stronger greenback also makes dollar-priced commodities more expensive for holders of other currencies.
The other main external driver of gold, oil, is still underpinning the precious metal. Crude hit a new record of $143.67 a barrel on rising tension between Iran and Israel.
Rising crude prices boost gold's appeal as a hedge against oil-led inflation, as well as fuelling investment interest in commodities in general.
The stock market slide of late last week is also benefiting commodities as an asset class as traders seek alternative investments, analysts said.
"Equities doing so badly over the last week has been good for commodities in general, and in terms of credit, default spreads have been rising," said Standard Bank analyst Walter de Wet. "That supports gold."
Investment interest in gold was firm last week, with inflows into exchange-traded funds rising.
SPDR Gold Trust, the world's largest bullion-backed exchange-traded fund, said its gold holdings rose by 2.5 per cent on Friday, and were up 4.5 per cent week-on-week.
SPDR, which launched a new listing on the Tokyo Stock Exchange on Monday, now holds 644.16 tonnes of gold.
London-based ETF Securities meanwhile said its gold holdings reached a record high of 1.266 million ounces on Sunday, up 6 per cent from the previous week.
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