Gold falls

A woman is reflected on a mirror inside a gold jewellery shop in the western Indian city of Ahmedabad.

A woman is reflected on a mirror inside a gold jewellery shop in the western Indian city of Ahmedabad.

Published Aug 1, 2012

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Gold fell on Wednesday as better-than-expected jobs data boosted the dollar and dampened speculation of further US stimulus measures, but held above $1,600 an ounce as financial markets awaited the outcome of Thursday's European Central Bank meeting.

Analysts had speculated that the Federal Reserve could hint at the end of its two-day meeting on Wednesday at gold-friendly action like monetary easing to boost its economy, keeping pressure on long-term interest rates and curbing the dollar.

A healthier snapshot of the jobs market makes that less likely.

Spot gold was down 0.5 percent at $1,605.66 an ounce at 14:53 SA time, while US gold futures for August delivery were down $5.20 an ounce at $1,609.40. The rally that took the metal to its highest since mid-June at $1,629.10 an ounce last week has stalled.

“We'll probably be in this range-trading environment until the end of August, beginning of September, when we are looking for some more measures for central banks,” Deutsche Bank analyst Michael Lewis said.

“By September, the possibility of more monetary action could be the trigger for a bit of a recovery to take hold.”

Until then, the metal is chiefly being driven by the euro/dollar exchange rate, with gains in the US unit making dollar-priced commodities more expensive for other currency holders, and gold less attractive as an alternative asset.

The dollar gained against the euro as data showed the US private sector added 163,000 jobs in July, beating forecasts for 120,000 new jobs. The figures come ahead of the much more comprehensive non-farm payrolls report due Friday.

The euro had already rolled back gains earlier on Wednesday on renewed doubts on the ECB's scope for further measures to fight the region's debt crisis.

The bank's leader Mario Draghi boosted hopes for strong measures to tackle the issue when he said last week he would do anything necessary to help the single currency.

The single currency is down nearly 5 percent against the dollar so far this year, hurt by the expanding euro zone debt crisis, which has forced Portugal, Ireland and Greece to seek international aid and led to soaring borrowing costs in Spain.

QE3 'REMAINS A POSSIBILITY'

“ECB president Draghi's comments about doing whatever is necessary to sustain the common currency have already boosted the sector, prompting gold to move from around $1,580 an ounce to current levels of $1,620,” RBS said in a report on Wednesday.

“A disappointing message from policy makers could trigger a correction back below $1,600 an ounce,” it added. “Regardless of this week's decision and comments, RBS maintains the view that QE3 remains a possibility further ahead.”

From a technical perspective, analysts at ScotiaMocatta say gold's unimpressive price performance since its break above $1,600 an ounce last week means it remains in consolidation mode, having traded in a $150 range for 3-1/2 months.

“The high on this move has only been 1629, which has so far failed to surpass the June high of 1641,” they said. “We remain neutral until we see a break of resistance at 1640 or below support of 1602 (from the breached downtrend).”

Barclays Capital, meanwhile, indicated resistance at $1,630/1,640 and support at $1,600/1,590.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, rose 3.32 tonnes on Tuesday, date from the fund showed. That pared its monthly net outflow back to just over 27 tonnes, the biggest one-month drop in its holdings this year.

Silver was down 2.1 percent at $27.29 an ounce, while spot platinum was down 1.5 percent at $1,388.74 an ounce and spot palladium was down 0.5 percent at $583.22 an ounce. - Reuters

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