Gold could come into its own as true safe haven--Scotiabank

Scotiabank's Patricia Mohr notes that record gold ETF inflows have boosted gold prices, as gold regains its luster as a true "safe haven."

Author: Dorothy Kosich
Posted: Friday , 30 Jan 2009
click here for original article

RENO, NV -

Scotiabank economist Patricia Mohr says the big picture outlook for gold remains bullish, suggesting "gold could come into its own as a true ‘safe haven' in coming months."

Noting that gold prices have outperformed base metals in the past six month, Mohr advised, "In view of a massive U.S. budgetary deficit likely to surpass US$1.25 trillion in FY2009, Asian and Middle Eastern central banks and sovereign wealth funds may seek to diversify away from U.S. Treasury Bonds and agency debt."

In her monthly analysis of the Scotiabank Commodity Price Index, Mohr highlighted "record investor inflows into gold ETFs...have also lifted precious metals prices, as retail and institutional investors seek a ‘safe haven' from volatile currency and equity markets."

Meanwhile, while commodity prices have not yet hit the floor, Mohr said the pace of their decline is slowing and "the forced, indiscriminate selling by funds-triggered by investor redemptions and tight-credit appears to be subsiding. Many prices are approaching average world cash costs, triggering substantial production cuts, new project deferral and tighter supplies."

Mohr's research revealed the rapid decline in base metals prices "has been unprecedented and reflects in part the forced exit of hedge funds from commodity market positions due to fund redemptions and curtailed credit in 2008:Q4."

However, Mohr noted copper prices have lifted off the recent low, although they remain vulnerable to poor global economic activity and a "huge OECD inventory correction in 2009:Q1."

"Zinc prices have also been supported b pro-active and very unusual production cuts by twenty smelters (including Zhuzhou in Chiba -20%, Trail in B.C. -20% to mid-2009 and Kidd Creek in Ontario -30% to mid-2009," she said. However, zinc prices still remain just below average world cash costs.

Meanwhile, spot potash prices at the Port of Vancouver remained at record levels of $872.50 per tonne last month, "though new business has come to a virtual halt," Mohr said. She suggested that stronger nitrogen fertilizer prices next spring may rekindle interest in potash.

Mohr's research revealed that Scotiabank's Commodity Price Index lost further ground in December for the fifth consecutive month, falling -5.5% m/m.

AngloGold has a strong view on the future of the gold price - Mark Cutifani, CEO

In an interview on SAfm @ 18:25 on 28 January 2009

[miningmx.com] -- ANGLOGOLD ASHANTI is bullish on the gold price and it is positioning the company to take advantage of that, said CEO Mark Cutifani.

"We have a strong view on the gold price going forward, and last year we had a view that gold would trade north of $800/oz on fundamentals, and so we decided to get rid of the hedge book," Cutifani said on SAfm Market Update. "I'd have to say at this stage that decision looks like it's what we've indicated, and so instead of a 20% discount to the prevailing spot price of the day, we are now down to 6% coming the end of this quarter," he said. "And, given our cash cost position, and the very modest discount, we are the most competitive gold business in South Africa, and one of the most competitive in the world," he added. AngloGold said on Wednesday it had sold its one-third stake in Australia's Boddington mine to its joint venture partner Newmont for $1.1bn and the sale means the $200m it had earmarked towards the completion of the development project has now been freed up. "Wat this does now is really position us to again continue to improve returns and look more opportunistically both in terms of our brownfields development opportunities and also other opportunities in the marketplace where some of these smaller companies are struggling," Cutifani said.

Sees strongest level in more than three months.

Jan Harvey
26 January 2009 14:45

click here

LONDON -

Gold climbed above $900 an ounce to its strongest level in more than three months in Europe on Monday, lifted by interest in bullion as a haven from risk.

Spot gold was $905.90/907.90 an ounce at 1046 GMT, up from $898.10 in New York late on Friday. Earlier in the session the precious metal hit $907.40, its highest since Oct 10.

Gold priced in sterling hit a record 661.55 pounds, while euro-priced gold remained near the all-time high it hit on Friday, as fears over the global economic slowdown and volatility in other asset prices spurred buying.

RBS Global Banking & Markets' head of commodity strategy Nick Moore said factors including falling interest rates, the reinflation of Western economies and the prospect of lower supply both from mines and via central bank sales were supporting gold.

"There is an insatiable thirst for gold at the moment," he said.

The dollar, whose strength usually weighs on gold, climbed to a six-week high against the euro on Monday, as investors worried about the outlook for the banking sector. [ID:nLQ139147]

However, other factors outweighed the dollar-euro exchange rate to support the precious metal. Demand for physical gold both from investors in smaller products such as coins and bars and from exchange-traded funds remains firm.

Investors were seeking the safety of physical bullion as other asset prices met fresh volatility, analysts said.

"In times of economic crisis, falling equity markets and mounting aversion to risk, physical gold is preferred as the safest form of investment," Commerzbank analyst Eugen Weinberg said.

The world's largest gold-backed ETF, New York's SPDR Gold Trust GLD, which issues securities backed by physical stocks of the precious metal, said its holdings rose 1.6 percent to an all-time high of 832.57 tonnes on Friday. [ID:nT293191]

The trust's bullion holdings have climbed more than 52 tonnes or nearly 7 percent since the beginning of the year.

ASIA

Japan's biggest bullion house Tanaka Kikinzoku said its gold coin sales more than doubled in 2008 as the global financial crisis unfolded. [ID:nT252802]

Asian precious metals trading is likely to be muted by the closure of the Shanghai Gold Exchange on Monday due to the Lunar New Year holiday.

On the supply side, AIM-listed gold miner Peter Hambro Mining (POG.L: Quote) said its 2008 attributable gold production was up 36 percent at 393,600 ounces, and that it expects its 2009 production to be 460,000-510,000 ounces. [ID:nWLA5793]

Among other precious metals, silver rose in line with gold to $12.03/12.11 an ounce from $11.92.

Platinum firmed to $965/970 an ounce from $955.50 an ounce in New York late on Friday.

"We would not be surprised to see the gap between platinum and gold narrow: the ratio stands at about 1.07 at the time of writing and we have a standing recommendation to buy the platinum gold spread when the ratio falls below 1.05," UBS strategist John Reade said in a daily note.

"We believe that in the long term platinum should trade at a considerable premium to gold and we observe that periods of platinum's discount to gold tend to be measured in days or weeks rather than months and years," he added.

Palladium eased to $191.50/196.50 an ounce from $195.00. (Editing by Sue Thomas)

© Thomson Reuters 2009 All rights reserved

New layout and thoughts on the week ahead

So I am trying out a new design now, I think its cleaner than the design I used last. I will be adding more new elements to this blog as i figure out what I am doing. After the run gold took over the past few days I must say i am rather impressed. I guess last week was a good time to buy, but thats an old joke, its always a good tome to buy, and with analylists expecting gold to hit $1100 an ounce by the middle of the year it must be true.

2009 gold price revised down - Standard Bank

2009 gold price revised down
Jade Menezies
Posted: Mon, 19 Jan 2009

[miningmx.com] -- The 2009 gold price could average $900/oz because of decreased demand and an easing of a prevailing supply deficit, said Standard Bank in its Equities Research report for this year.

“Our gold price forecast for 2009 has changed to US$900 from our previous forecast of US$980/oz” Standard Bank said in the report dated 16 January. The average price for 2008 was $872. The impact of the credit crisis will be strongly felt on the demand side for gold, it said. “A slowdown in global growth will likely affect fabrication demand specifically gold jewellery, electronics and other industrial components,” said Standard Bank. “We estimate the downturn in fabrication demand could be between 240 tonnes and 360 tonnes in 2009.” The gold price has not been immune to the global financial crisis; however, relative to almost all other commodities it has been an outperformer, said Standard Bank. The up-trend of the gold price depends heavily on the performance of the dollar, for which the outlook in the second half of the year is poor, MD of GFMS Analytics, Rona O’Connell told SAfm Market Update. “We could certainly see the old high challenged and possibly even taken out, but whether we can stay much above $1,000 for any reasonable period of time has to be open to question, I'd have thought,” she said. The main drivers of the gold price will be investment flows and speculators because the physical side of the market is weak, she said. “The investment fraternity is still relatively friendly but, as I say, not quite friendly enough yet, and the hot money is obviously one of the most important elements when it comes to pushing prices,” O’Connell said. “So, increasing investor activity, particularly from the institutions, from pension funds, is likely to create a drain on the metal supplies. That almost by definition would then be coloured by speculative activity, as speculators piggy-back on top of it - and that's going to be driven by economic and financial uncertainty,” she said. Standard Bank said its calculations now showed the physical gold market in a neutral position for 2009 against a previous expectation of a 315 tonne supply deficit. "We believe the gold price will be volatile and will likely rise significantly by fourth quarter 2009 on the back of seasonality and a gradual upward trend in global GDP. We maintain our long-standing view that the supply and demand fundamentals will remain intact for a long-term upswing in the gold price," it said. O’Connell said sales under the Central Bank Gold Agreement fell considerably during 2008 and was unlikely to be much different this year, meaning there is less gold available to the market.

Gold's 2 year cycle

A Mineweb reader has noticed a recent two-year cycle for gold price behaviour which, if it continues will likely give some guidance to price movements this year and next.
Author: Joseph Cafariello
Posted: Tuesday , 06 Jan 2009
view original article here

EDMONTON, CANADA -

There seems to be a two-year cycle in the gold price which has been repeating itself since about 2004. The even years follow one pattern, while the odd years follow another pattern. The even years tend to reach exaggerated extremes to the upside and to the downside on a percentage basis, while the odd years tend to be a little calmer with less volatility.

For example, 2008 went very much like 2006, with exaggerated highs reached in the spring of each year, and a late start to the traditional autumn-winter-spring upswing, which began around October/November of 06 and 08. On the odd-number side, 2007 went much like 2005, with moderate highs reached in May of each year, and an early start to the traditional autumn-winter-spring upswing, which began around August/September of 05 and 07.

If this is indeed a reliable cycle, we can expect 2009 to be much like 2005 and 2007 all throughout the year. The first half of 2009 should see gold follow the same pattern as the first halves of 2005 and 2007. In the springs of 05 and 07, gold kept hitting its head against the previous year's high all throughout the spring. More than once during the spring of 2007, gold topped out at about $690, coming to within about 5% of the 2006 high of $735. Similarly, the spring of 09 should see gold hitting its head against 2008's high of $1,035, coming to within 5% of it, or up to about $985. That will be the high for the first half of 2009 at around the beginning of May, though this will not be the high for 2009 as a whole.

Given the odd-number year pattern, we might also expect the back half of 2009 to be much like the back halves of 2005 and 2007. In both 2005 and 2007, the summertime pull-backs were modest, and the autumn-winter-spring upswings started early, at around August/September of 05 and 07. The latter half of 2009, then, should see a modest summer-time pull-back of about 5% to 7% of its spring 09 high, taking gold down from $985 in May 09 to about $925 by August 09. However, the low for 2009 will still be the upcoming January low of $800, which is now only about a week or two away. The lows of January 2005 and January 2007 were also "the" or "close to the" annual lows for those years. So the low of 2009 will be at around $800 in January.

The high for 2009 will come in December. The traditional autumn-winter-spring upswing in 2009-10 will be much as it was in 2005-06 and 2007-08, with an early start. The year-end run for 09 will begin around August or the beginning of September, jumping from about $925 in Aug/Sep 09 and rising steadily until the end of December 09. The annual highs for 2005 and 2007 were hit in or near December of each year, and each high was about 20% higher than the average of their first halves. Thus, the annual high of 2009 will be hit in or near December, and will be 20% higher than the average of its first half, putting the 2009 high at about $1,150 in December.

The traditional autumn-winter-spring upswing, however, will certainly not end in 2009, but will spill over into the spring of 2010 much as it did in the springs of 2006 and 2008. The high in the spring of 2008 was about 40% higher than high in the spring of 2006. Hence, the high in the spring of 2010 will be about 40% higher than 2008's high of $1,035, putting gold at about $1,450 in the spring of 2010. Then, the summertime pull back of 2010 will be just as stark as were the summertime pullbacks of 2006 and 2008.

And so the two-year cycle will continue, where even-number years follow a pattern of extremes, while the odd-number years are calmer, but with a nice upward kick at the end. This two-year cycle with even-number years on the extreme side and odd-number years on the moderate side will continue until the commodity boom is over (say around the year 2030, when the populations of China and India finally achieve a 75% middle-class), and until the US dollar recovers at around the same year (2030), when the rest of the world will be looking to the US as a nice place to shop given its then-to-be dirt-cheap dollar.

The above comment was contributed by Mineweb reader Joseph Cafariello who describes himself as "A raving gold bug and proud of it"

I just found this article, its quite old but has some great points fo investing, especially in gold. You can find the article in its original context here

A beginner's guide to investing in gold

Sep 19, 2007 By Mark O'Byrne

For centuries gold has been coveted for its unique blend of near indestructibility, beauty, rarity and because of its status as a universal currency. Empires and nations have sought to possess gold as a medium of international exchange, as a store of wealth and in order to increase and preserve power. Individuals have used gold as a store of wealth and as insurance against the fluctuations and depreciation of paper money and other macroeconomic and geopolitical risks. Perhaps no other market in the world has the universal appeal of the gold market.Successful investing is about the diversification and management of risk. In layman's terms this means not having all your eggs in one basket. We know from history that markets can and do crash and if you are not diversified your entire nest egg can be wiped out.

Gold tracks euro higher

Singapore - Gold edged up to track a firmer euro and crude oil on Wednesday, but trade was thin, with investors careful about taking large positions ahead of a European interest rate cut that could sap the single currency.

Investors expect the European Central Bank to slash interest rates on Thursday by 50 basis points from 2.5% now, to help fight the economic downturn.

Gold was at $824.40 an ounce, up $3.35 from New York's notional close on Tuesday, when it dropped to a 1-month low of $813.10 before bouncing back to track gains on crude oil.

"I think everyone is cautious ahead of the ECB meeting. The correlations are a bit mixed recently. I mean, the dollar was up against the euro yesterday but we also saw some strength in gold," said a dealer in Singapore.

The euro bounced from its weakest in a month against the dollar but was still under pressure ahead of the ECB meeting. The euro firmed to $1.3264 after hitting a one-month low of $1.3140 on trading platform EBS.

In theory, a weaker dollar lifts gold's appeal as an alternative investment as the world tilts into recession. But commodity prices, quoted in dollars, often suffer when the dollar is strong, as it weakens the buying power of investors using other currencies.

Oil rose more than $1 a barrel, aided by cold weather in the United States and an announcement of further production cuts from Saudi Arabia.

Oil was likely to dictate movements in gold in coming days, but dealers also expected physical buying to offer support if the energy market reversed course again. Dealers noted buying on dips ahead of the Lunar New Year later in January.

"Demand gradually becomes very strong in Asia. $800 is the bottom price for the time being," said Yukuji Sonoda, precious metals analyst at Daiichi Commodities in Tokyo, referring to a level seen late in November.

Gold's recent falls also attracted buying from jewellers in Japan, while platinum, which has lost more than half of its value since hitting a record above $2 200 last March, also enjoyed steady demand, said Sonoda.

"The price has decreased so much. The economic situation is so bad but jewellery demand is stable," said Sonoda.

Gold was around 7% below an 11-week high of $889.55 hit in late December but has bounced more than 20 percent since falling to a 13-month low around $680 in late October.

Bullion hit an all time high of $1 030.80 an ounce last March.

Platinum was trading at $954.50 an ounce, up $13.50 from New York notional close. New York gold futures added $4.3 an ounce to $825.0 in electronic trade.

- Reuters

-www.news24.com

Gold headed for good 2009 as "perfect insurance" sought

The metal will average $910 an ounce in 2009, according to the median forecast of 20 analysts.

Nicholas Larkin, Claudia Carpenter and Pham-Duy Nguyen
07 January 2009 07:31

(Bloomberg) - Gold, the best-performing metal in 2008, may appreciate for an eighth year as investors seek a refuge from declining interest rates at the same time that central banks inject more cash into the banking system.

The metal will average $910 an ounce in 2009, 4.3 percent more than last year, according to the median forecast of 20 analysts, traders and investors surveyed by Bloomberg. Silver and platinum, which averaged at least 12 percent more in 2008, will decline this year, the survey showed.

Gold prices may strengthen after about $29 trillion was wiped off equities last year, the Federal Reserve cut interest rates to as low as zero and governments sought to end the worst financial crisis since World War II. The metal was one of only four commodities to rise when the Reuters/Jefferies CRB Index fell 36 percent, the worst year in a half-century.

"People fear inflation, they fear the credit crunch and they fear currency losses, and gold is the perfect insurance against all of that," said Frederic Panizzutti, a senior vice president at Geneva-based bullion refiner MKS Finance SA, who forecasts gold will average more than $900 in the first half of 2009. Panizzutti was the most accurate forecaster in the London Bullion Market Association's 2008 survey.

Average gold prices have risen for seven consecutive years, the longest winning streak since at least 1949. While the return of 5.8 percent through 2008 was the smallest since 2004 in dollar terms, gold rose 11 percent in euros and 44 percent in British pounds, data on Bloomberg show.

Mali Mines
The plunge in equities spurred some investors to buy precious metals. Gold in the SPDR Gold Trust, the largest exchange-traded fund backed by bullion, reached 780.23 metric tons on Dec. 29, up from 627.88 tons at the start of the year.

The total is equal to almost four months of supply from mines.

Gold producers were among the top performers in the 162- member Bloomberg World Mining Index last year, which fell 61 percent. Royal Gold Inc., the Denver-based owner of rights to gold sales from companies including Barrick Gold Corp., rose 61 percent. Randgold Resources Ltd., the Jersey, Channel Islands- based owner of two gold mines in Mali, advanced 60 percent.

"There is every reason to believe gold's going higher and a lot sooner than most people think," said Randgold Chief Executive Officer Mark Bristow, head of last year's best performing company in the FTSE 100 index, which it joined last month. "Our estimate is that new gold supply is going to be reduced by 15 percent over the next three years."

-www.moneyweb.co.za

full article here

Paul Walker calls gold to $1,100

Brendan Ryan
Posted: Thu, 08 Jan 2009

[miningmx.com] -- GFMS CEO Paul Walker predicts gold could rise to about $1,100/ounce by the end of 2009 with an “outside chance” of the metal reaching $1,200/oz during the year.

The UK-based precious metals analyst has turned more bullish on gold’s prospects following the financial crisis that erupted from September onwards and the steps taken by US and other government authorities to deal with it. Walker has been “on the money” with his predictions for both gold and platinum during 2008. In December 2007 he stated his belief that gold would not reach $1,200/oz by the end of 2008 and, in April last year, he turned negative on prospects for the platinum price contrary to conventional platinum industry wisdom at the time. Walker said: “Gold is looking a very attractive proposition for those people looking for a safe place to put their cash. “You have to look at the huge fiscal stimulus packages already put in place by the United States authorities and with more being promised once president-elect Obama gets into office. “These involve the creation of enormous amounts of debt by the government. There is no free lunch here. When it comes to repayment of the debts, government will have the choice of raising taxes or allowing inflation to run.

“It is much easier to take the pain of rising inflation than it is to take the pain of higher taxes.” Inflation is traditionally good for gold but some economists, in particular “Dr Doom” - New York University economics professor Nouriel Roubini, who predicted the financial crisis a year advance - believe the economic outlook is one of severe deflation. Deflation is bad for gold but Walker does not accept the deflationary economic outlook. He said: “I just don’t see deflation being a real issue in this market. You may see inflation rates coming off from their 2008 peak levels in the short term, but the more important issue concerns the situation where you have highly negative real interest rates. “I believe the current flight to the US dollar could reverse and the dollar could weaken significantly.” Walker’s views on inflation are supported by former Gold Fields CEO Ian Cockerill, the executive with whom Walker took a bet against the gold price reaching US$1,200/oz during 2008. Cockerill is now CEO of Anglo Coal but he still clearly follows the gold market closely. He said: “The inflationary pressures that must result from all these financial bail-outs must lead to higher inflation rates, which must lead to a higher gold price. I am surprised that gold has not yet performed as a result.”
-miningmx.com

JSE takes a dive

Johannesburg - The JSE had sunk into the red by noon on Wednesday as investors around the world took profits and markets consolidated after the recent big moves.

By noon, the JSE all share index had given up 0.84% with resources losing 0.82% and platinum counters falling 0.53%. However, gold miners collected 3.87%. Banks weakened 0.72%, financials were flat (down 0.08%) and industrials lost 1.21%.

The rand was last bid at R9.34 to the dollar, from R9.31 when the JSE closed on Tuesday, while gold was last quoted at $863.87 a troy ounce from $848.65/oz at the JSE's last close.

Platinum was at $986.50/oz from its previous close of $964.50/oz.

"It's really not surprising that we are down at the moment. We have had some very big moves," an equities trader said.

"Shares have been over done in the short term. There is profit-taking and markets are consolidating.

"Metals have moved a long way and we could see them come off a bit more," he said.

"The worldwide rally seems to have run out of steam. Dow futures are down at the moment and it wouldn't be surprising if we close lower as well," he added.

Dow Jones Newswires reports that London stocks moved lower as investors consolidated gains from the recent run.

The FTSE was last down 1.32%.

US stocks are expected to fall at the open, caught in the downward momentum of lower trading in Europe. Martin Slaney, trader at GFT Global Markets, calls the DJIA to open down 86 points and the S&P 500 down 8.4 points.

- I-Net Bridge

Bright outlook for gold

Johannesburg - Demand, and ultimately, the price of gold in 2009 will depend largely on the economic performance of the US and Europe in a global economic environment riddled with uncertainty.

"Everyone is saying that it's a good year for gold," said VM Group analyst Matthew Turner.

RBC Capital Markets analyst Leon Esterhuizen agrees the gold price should gain, but does not expect it to go much higher as demand is depressed, particularly that for gold jewellery.

Esterhuizen, who reckoned the gold price has increased in the first quarter seven out of 10 years, expects it to move up from current levels of about $870/ounce to $900 by end-March.

This compares favourably with Fairfax Securities' estimate of $885/$890 for the end of the first quarter. Thereafter, gold is expected to be seasonally weak in the second quarter, in line with a fall in manufacturing demand.

Manufacturing offtake comprises a relatively large component of overall gold demand, and tends to be softer mid-year as demand for festivals such as Christmas and the Lunar New Year fall away.

Fairfax Securities analyst John Meyer doesn't believe that gold prices will be "oversold in 2009", with the commodity expected to average $850 in the first six months of the year, and the price expected to touch $1 000 per ounce by year-end.

Investment demand for gold is not expected to be that good in the first half of 2009, especially in the second quarter. While the dollar has been volatile it has, nevertheless, proved resilient though the global economic crisis. As a result, investors have parked money in US bonds as one of the safer investment options.

According to Meyer, there will be a balance between the latter and the need to weaken the dollar to stimulate growth. Demand for and, ultimately, the price of gold will be dependent on external factors, notably the performance of the US and European economies.

VM Group, which brings out its gold price forecast later this week, anticipates a recovery in the US in the second half of 2009 as this is what has traditionally happened in previous times of recession.

This may lead to increased interest rates in the US, which will have a negative impact on the investment demand for gold.

Nevertheless, an increase in economic activity towards the end of 2009 and early 2010 should ultimately be good for gold demand, notably in the jewellery sector. This, in turn, will have a positive commodity price effect.

- Miningmx.com

Gold falls as investors end year

New York - Wall Street's fears about fighting in the Middle East eased on Tuesday, sending oil and gold prices lower as commodities investors looked to close the books for the year.

Investors sold gold after it had advanced on Monday amid fighting between Israel and Hamas leaders in Gaza. Contracts for February delivery of the metal fell $1.70 to settle at $873.60 an ounce on the New York Mercantile Exchange.

Gold remains above levels of mid-November when it was hit by heavy selling by hedge funds and other large investors trying to raise cash.

The price of oil also declined on Tuesday after Israeli officials said the nation was considering a 48-hour halt to its four-day air campaign on Hamas to see whether Palestinian militants would stop their rocket attacks on southern Israel.

"On the energy side the geopolitical tensions seemed to be losing their sting a bit," said Edward Meir, senior commodities analyst at MF Global in New York.

Light, sweet crude for February delivery fell 99c to settle at $39.03 a barrel on the New York Mercantile Exchange.

Meir noted that overall trading volume was light as the year ends.

"I don't think anyone's doing anything. Volumes have dried up and they're going to write the year off," he said.

In other Nymex trading, gasoline futures rose about a penny to settle at 87.45c a gallon, while heating oil gained less than a cent to settle at $1.2853 a gallon.

The dollar was lower against the euro and rose against the British pound.

Grain prices have been climbing the past few weeks on the Chicago Board of Trade and rose again on Tuesday after slipping on Monday.

March copper futures added 0.0175c to close at $1.3290 a pound, while March silver rose 16c to close at $10.97 an ounce.

- AP

Gold's 11-week reign ends

Dec 30 2008 10:42

Singapore - Gold slipped on Tuesday as speculators booked profits from a rally to an 11-week high the previous day, but sentiment was still underpinned by conflict in the Middle East and a weaker US dollar.

Gold rallied as much as 24% in 2008, striking a record high of $1 030.80 in March on fears of rising energy costs and as investors diversified into precious metals on the dollar's uncertain outlook.

"There's a reasonable chance we'll see some end-year profit taking in what has been the best performing commodity this year and certainly this quarter," said Mark Pervan, head of Australia & New Zealand Bank research.

"There's been concerns of high political risk in the market. But I think it might struggle to get through $900, unless there's a major flare up again tonight," he said, referring to the fighting between Israel and Hamas in Gaza.

Gold was trading at $873.75 an ounce, down $3.75 an ounce from New York's notional close on Monday, when it rallied to as high as $889.55 an ounce after oil jumped more than $2 on fears Israeli attacks on Hamas could disrupt oil supplies.

Buying from Japanese investors amid fears of a global recession helped gold stay at current levels, dealers said. Gold last traded above $900 in early October, before tumbling to its weakest in 13 months around $680 after a sell-off in equities and fears of a deepening global economic downturn forced investors to cash in to cover losses.

Regaining safe-haven appeal

It slowly regained its safe-haven appeal after stock markets stabilised, with a rebound to around $800 also igniting technical buying.

Israeli warplanes killed 10 Palestinians in attacks that targeted Hamas government buildings and other symbols of the Islamist group on the fourth day of the fiercest air offensive in Gaza in four decades.

Oil fell below $40 on Tuesday as demand concerns overshadowed Middle East crude supply fears amid the Israeli-Hamas conflict, with prices on track to end the year down 60%, their biggest annual loss on record.

"Although gold has the energy to head higher, sustainability would be a key factor," said Pradeep Unni at Richcom Global Services in Dubai, adding that gold had in the past failed to hold on to gains driven by geopolitical tensions.

He pegged resistance around $930 an ounce, a near three-month high hit in early October.

The euro rose to $1.4062 as tensions in the Middle East weighed on the US currency.

Investors are awaiting the release of US consumer confidence for December, due at 15:00 GMT. Economists polled by Reuters expect a reading of 45.0 compared with 44.9 in November.

Platinum was trading at $902.00 an ounce, down $13.50 from New York notional close.

New York gold futures added $0.7 an ounce to $876.0 in electronic trade.

- Reuters