Gold rose on Thursday, after three days of losses, although the drag of the euro near two-year lows tempered the bullion price and eclipsed data that showed another rise in central bank purchases of the metal last month.
The euro edged higher, having hit a near two-year low against the dollar earlier on Thursday after dire German economic data suggested no country in the region was immune from crisis, spooking investors already weighing the risk of Greece leaving the euro zone.
This offset a potentially bullish lift from International Monetary Fund data that showed another rise in central bank holdings in April, after the largest purchase in over four years by the Philippines and further additions by the likes of Mexico, Ukraine and Russia to their reserves.
Spot gold rose 0.3 percent to $1,566.06 an ounce by 12:35 SA time.
“The correlation with euro/dollar is quite strong at the moment. Today we've seen the euro come back off its immediate lows ... and that has helped the precious metals get a bid again,” Tom Kendall, an analyst at Credit Suisse, said.
“On balance, I still think $1,600 is more likely than $1,500, although that view was looking a little shaky yesterday ... that is how quickly this market can shift around.”
The weaker-than-expected Ifo business climate index and manufacturing PMI data for May suggested the growth in Europe's largest economy that has so far helped the currency bloc dodge recession may be starting to slow.
The correlation of gold to the euro/dollar exchange rate held close to its highest in a month, meaning that a move in the euro was more likely to see an identical move in gold than as recently as two weeks ago.
European investors are also more likely to sell their gold when the euro depreciates against the dollar to earn a higher profit on their currency position by taking profit on their dollar-denominated bullion position.
“The euro fell to levels not seen since February 2010, when gold was trading around $1,100 an ounce. If gold moved entirely in lockstep with EUR/USD movements, we would expect the bullion market to be much closer to the $1,100/oz level,” HSBC said.
“That gold now is USD460/oz higher, at $1,560 an ounce, implies it may have some other underlying supportive factors influencing prices.”
RISK ON, RISK OFF
The high risk aversion that has dominated the financial markets over the past few months has resulted in gold coming under pressure, rather than benefiting from such nervousness as it usually does.
This proved to be a stronger driver for the gold price, which has lost 0.5 percent in value so far in 2012, on Thursday than more metal-specific news.
The Philippines raised its gold holdings in March by the largest amount in 3-1/2 years, while Mexico and Ukraine made additions in April, in line with the trend among emerging-market central banks to diversify away from the dollar and the euro.
Data from the International Monetary Fund on Thursday showed the Philippines added 32.13 tonnes of gold to bring its total to 194.241 tonnes in March, marking the biggest increase in one month since September 2008.
“We regard the central banks as a stabilising element on the gold market and anticipate increasing buying of gold if its price should fall towards the $1,500 a troy ounce mark,” Commerzbank said in a note.
Platinum imports into Switzerland, a major PGM clearing hub, fell to their lowest in over four years in April, largely due to a steep decline in shipments from top producer South Africa.
This fall was the result of a sharp decline in the recent months in output at most mining companies because of safety stoppages, which in February and March was compounded by a strike at Impala Platinum's Rustenburg mine, the world's largest platinum facility.
Spot platinum, which fell for the last two sessions, was up 0.3 percent at $1,422.74 an ounce, leaving the week-on-week decline to 2.2 percent and the fall for the month to nearly 9.5 percent.
Palladium rose by 0.5 percent to $591.58 an ounce, while silver was up 0.8 percent on the day at $28.02. - Reuters