Gold rebounds 1% but outlook clouded by ETFs, dollar
Author:Network sources Source:Network sources Date:2013-04-26

Gold rose more than 1% on Wednesday on bargain-hunting after a drop in the previous session, but pressure from a firm US dollar, strong equities and daily falls in the holdings of exchange-traded funds look set to cap prices.

Although demand for gold bars, coins, nuggets and other products has surged in Asia after prices plunged to their weakest in more than two years, investor confidence is still reeling after bullion's spectacular fall.

"Good physical demand in China or in Hong Kong supports gold, but sentiment is still bearish," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong.

"It looks like on the upside we still can see some people liquidating, or taking profits. So, it's quite mixed from here," said Fung, adding that prices could fall back to $1 300.

Cash gold hit an intraday high of $1 429.81/oz and stood at $1 428.16 by 0549 GMT, up $15.92. Gold sank to around $1 321 on April 16, the lowest in more than two years, in a sell-off that surprised ardent gold investors and bulls.

U.S. gold futures for June delivery hit a session high of $1 429.50/oz, which was partly driven by gains in Shanghai gold futures.

Cash gold, which has dropped about 15% this year, is torn between a rise in demand for jewellery and coins, and investors in exchange-traded funds cutting exposure to it on worries about central bank sales and prospects of easing inflation.

The SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.68% to 1 097.19 tonnes on Tuesday from 1 104.71 tonnes on Monday. The current holdings are at multi-year lows.

But premiums for gold bars soared to multi-year highs in Asia after a spate of physical buying ran down supplies, with dealers in top consumer India expecting a surge in imports this month.

On Wednesday, sellers in Hong Kong were still quoting premiums for gold bars as high as $3/oz to spot London prices, their highest level since October 2011.

"While some physical buyers have been flocking to gold in light of lower prices, ETF investors seem to be heading the other way and cutting their exposure," said Edward Meir, a metals analyst at futures brokerage INTL FCStone.

"Right now, we are seeing a mixed bag in the markets, with the precious group slightly higher, but both metals and energy are off in early trading."

Gold prices are expected to end 2013 at $1 450/oz to $1 550/oz, only partly recovering from a recent brutal selloff that shook investor confidence after 12 unbroken years of gains, a Reuters poll showed.

In other markets, shares advanced in Asia on Wednesday, tracking global equities higher on the back of solid US earnings, but the euro was pressured by soft German data underscoring the still-fragile state of the euro zone economy.


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