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