Gold Steady on Europe Hope; Tight Physicals Help

By: Reuters

Gold prices held steady on Thursday, as optimism for a solution to the euro zone crisis underpinned sentiment, while tight physical supply in Asia continued to lend support.

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A day after Slovakia's parliament voted against the expansion of the euro zone's rescue fund, parties in the outgoing government struck a deal with the leftist opposition to ratify the expansion by Friday, effectively ending a crisis that had threatened the currency's main safety net.

"Gold is likely to remain in range trade as everyone is waiting for the euro zone to reveal how it will solve the debt crisis by the end of the month," said Dick Poon, manager of precious metals at Heraeus in Hong Kong.

Poon expected gold to move sideways between $1,650 and $1,730 until the market sees a clear direction.

The pledge by Germany and France to unveil new measures to tackle the debt crisis by the end of the month, together with other signs that European leaders are determined to avert contagion, has soothed widespread anxiety in financial markets.

Spot gold [XAU=  1674.79    -1.91  (-0.11%)   ] edged up 0.1 percent to $1,678.49 an ounce by 0257 GMT, off a 2-1/2-week high of $1,691.6 hit in the previous session.

U.S. gold [GCCV1  1679.50    -3.10  (-0.18%)   ] inched down 0.1 percent to $1,681.

Investors are waiting for the G20 meeting this weekend in Paris, where finance ministers and central bank governors are expected to press Europe to find an urgent solution to its debt crisis.

PHYSICAL SUPPLY STILL TIGHT; BUYING EASES AS PRICES RISE
Buying interest in the physical market eased as spot gold prices rose more than 2 percent so far this week, dealers said.

"We saw some light selling yesterday evening," said a Singapore-based dealer, "The supply is still tight, and we need the market to sell back to bring premiums down."

Gold premiums in Singapore were about $2 an ounce above spot prices, she said.

Poon of Heraeus in Hong Kong expected the supply tightness over the past few weeks to ease, as more shipments arrive in the bullion trading hub.

Physical buyers are eyeing $1,650 as an attractive level to enter the market, he said.

Other precious metals also held steady. Spot platinum [XPT=  1539.24    -4.31  (-0.28%)   ] was little changed at $1,544.74 an ounce, after three days of consecutive gains.

Spot palladium [XPD=  603.25    -1.53  (-0.25%)   ] edged down 0.1 percent to $603.99. It is down 24 percent so far this year as the worst performer in the precious metals complex.

Although underlying demand from the auto sector has shown continued improvement over the past three months in key regions, the lack of investment interest has sunk prices of the metal, which nearly doubled last year, said Barclays Capital analysts.

"While palladium's fundamentals remain intact, disinvestment has proved to be a key swing factor as concerns over demand weigh," they said in a research note.

"In turn, prices need investment flows to stabilise before they can look to their fundamentals for support."