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Firm gold market focus shifts back to $700

LONDON - Gold rallied on Thursday as confidence returned and analysts expect the precious metal to aim for $700 an ounce as worries about high oil prices, a weaker dollar and security risks dominate.

Spot gold XAU hit a session high of $677.20 an ounce before slipping to $673.40/673.90 by 1045 GMT, still above the $669.40/670.10 seen late in New York on Wednesday, when it dropped to a one-week low of $660.

“The theme of dip buying continued as the favourable background of geo-political tensions, high energy costs and dollar dissatisfaction drew pockets of investor bargain hunting,” TheBullionDesk.com said in a note.

Gold hit a nine-month of $689 on Monday as firm crude oil CLc1, tensions between Iran and the United States and a weaker dollar raised the metal’s appeal as a haven and a hedge against inflation.

The metal rallied to a 26-year high of $730 last May.

“Sentiment towards gold is still bullish, what happened this week is a blip, it coincided with a period when gold needed a consolidation period,” said Stephen Briggs, analyst at SGCIB.

“The gold price is going to head towards $700, that’s what people want it to do.”

A frenzied sell-off in stock markets around the world on Tuesday triggered a slide in gold as investors cashed in bullion holdings to pay for losses on equities.

Key data

But the U.S. benchmark Dow Jone Industrial Average index .DJI bounced on Wednesday after Federal Reserve Chairman Ben Bernanke calmed equity markets by saying the U.S. economy was set to grow moderately.

However, traders said losses on Thursday in Asian stock markets, including Shanghai, which started the rout on Tuesday, could hit gold prices later if Europe and the United States followed.

London stocks were firm, but how they fare will depend on the U.S. market and key data on manufacturing in the United States due later on Thursday.

The Institute for Supply Management’s index of factory activity in the United States is due at 1500 GMT.

“If it comes in below 50 (contraction), we could see an equity and dollar sell-off,” a trader said. “Which one prevails in the gold market will depend on whether the market wants to go higher or lower.”

A lower U.S. currency would normally make dollar-based metals cheaper for investors in other currencies, while gold is seen as a hedge against oil-led inflation.

Crude oil CLc1 was hovering near this week’s two-month high of $62.25 a barrel.

Silver XAG was up at $14.27/14.32 an ounce from $14.14/14.19 late in New York on Wednesday.

Platinum XPT slipped to $1,240/1,247 an ounce from $1,247/1,254 an ounce in New York. Palladium XPD was softer at $349/354 from $350/355 an ounce.