Gold prices held just below $1,530 an ounce on Thursday ahead of a key interest rate decision from the European Central Bank, having earlier hit fresh two-week highs as worries over the euro zone debt crisis prompted buying.
Spot gold was bid at $1,527.20 an ounce at 11:25 SA time against $1,527.50 late in New York on Wednesday. U.S. gold futures Prices earlier climbed as high as $1,534.20 an ounce, their highest since June 23, recovering from two consecutive weeks of losses.
“The buying is currently always bigger than the selling, and therefore the moves are always more exaggerated to the upside. The market is seeking out bullish news,” said ANZ Bank analyst Peter Hillyard.
“Situations like Portugal, what is continuing to happen in Greece... will be the bullish triggers that will take (prices) up.”
The euro extended losses for a third day on Thursday on expectations that worries about Europe's sovereign debt problems will take centre stage again after a widely expected interest rate hike by the ECB later in the day.
The single currency hit a session low against the dollar after Moody's ratings agency downgraded Portuguese banks' government-guaranteed debt after it cut the country's credit rating to junk the previous day.
Against a basket of currencies , however, the dollar slipped 0.1 percent to 75.075, failing to benefit significantly from euro zone woes, with concerns about the United States' own budget deficit playing on investors' minds.
Concerns over debt levels in some smaller euro zone economies, including Greece, Portugal and Ireland, were a key factor pushing gold prices to record highs above $1,575 an ounce in May.
Financial markets are now awaiting the outcome of the ECB's policy meeting, with an announcement on interest rates due at 13:45 SA time and a news conference scheduled for 14:30 SA time.
Market watchers expect a quarter-point rise in the ECB's benchmark rate to 1.50 percent as a virtual certainty after the bank's recent reiterations that it is in a mode of “strong vigilance” - code traditionally used to signal a hike.
LOW RATES SUPPORT GOLD
While rising interest rates typically weigh on gold, expectations that the ECB will lift rates more quickly than the U.S. Federal Reserve are supportive of the precious metal, which tends to benefit from a weaker dollar.
“We continue to consider the gold market to be “under-bought” relative to the level of U.S. real interest rates, and expect current low real rates to motivate a rise in net speculative positions, providing support for a further rally in gold prices,” said Goldman Sachs in a note on Thursday.
It added, however: “We continue to expect gold prices to peak in 2012 as U.S. real interest rates rise with the ongoing economic recovery, and the potential for U.S. real interest rates to rise more quickly than we anticipate presents a downside risk to gold prices.”
On the supply side of the market, talks between striking Indonesian workers at the world's biggest gold mine and Freeport McMoRan Copper & Gold's management have broken down, leaving mining still halted, a government official said on Thursday.
Among other precious metals, silver was bid at $35.88 an ounce against $35.85.
The gold:silver ratio - the number of ounces of silver needed to buy and ounce of gold - stood at around 42.5 on Thursday, well above April's 28-year low of 31.7, meaning silver has become less expensive compared to gold as prices of both have retreated.
“While we believe silver could continue to outperform other precious metals, we are concerned about persistent levels of volatility and damage to technical indicators and sentiment. Consequently, we maintain our preference for gold in the short term,” said Morgan Stanley in a note.
Spot platinum was bid at $1,719.85 an ounce versus $1,721.60, while spot palladium was at $769.47 an ounce against $762.48. - Reuters