Thursday May 8, 02:41 PM
Metals - Gold rises as dollar come off highs vs euro, crude oil stays firm
LONDON (Thomson Financial) - Gold rose in early afternoon trade, reversing this morning's losses, as the dollar retreated from an eight-week peak against the euro and crude oil prices stayed near record highs.
The greenback pared gains against the euro after comments from the European Central Bank chief Jean-Claude Trichet dampened expectations of an imminent euro zone rate cut, after the bank opted to leave interest rates on hold at 4 percent.
A weaker dollar adds to gold's appeal as an alternative investment, and makes the precious metal cheaper for holders of other currencies.
At 2:21 p.m., spot gold was trading at $877.60 per ounce against $870.00 in late New York trade on Wednesday.
Higher crude prices -- which hit new records overnight -- also boost sentiment towards gold, which can be bought as a hedge against oil-led inflation.
However, with U.S. Federal Reserve officials suggesting that curbing inflation may become more of a priority, expectations for further U.S rate cuts are waning. This is likely to pressure gold lower.
'The current bounce back above $870/oz we do not believe will be sustained, as central banks are showing stronger inflation vigilance currently, which removes one of the key positives for gold,' said JP Morgan anal
'Some physical buying is protecting the $850/oz area but long liquidation will cap the upside,' he added.
Increased jewellery buying during this week's Akshaya Tritiya festival -- an auspicious time for buying precious metals -- in the world's biggest gold market, India, was also expected to lend support to the market.
However, high and volatile prices are crimping demand for the metal among traditional buyers, analysts said.
'Traditionally gold sales surge in India for the Akshaya Tritiya (festival),' said Fairfax analyst John Meyer. 'However, sales may be off 30 percent in response to high prices and volatility for the metal putting customers off purchases.'
Among other metals, silver rose to $16.76 an ounce from $16.65.
Elsewhere, platinum rose to $1,993 an ounce against $1,958, while palladium was trading at $426 against $420.
Both metals remain supported by supply fears from South Africa, which produces around 80 pct of the world's platinum and one-third of its palladium, and by hopes demand from the investment sector and from carmakers will remain strong.
'Strong demand from industrial and investment players, coupled with tight fundamentals continue to provide good support,' said James Moore of TheBullionDesk.com.
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