Gold firms as US dollar retreats, oil climbs

LONDON - Gold rose back above $US1,430 an ounce in Europe as oil prices climbed and the dollar eased, and as traders anticipate a rate hike from the European Central Bank may lead to further weakness in the US unit.

Rising interest rates are generally negative for gold, as they raise the opportunity cost of holding non-yielding assets, but real rates are expected to remain depressed by rising inflation.

Spot gold was bid at $US1,434.30 an ounce at 1907 AEDT, against $US1,427.98 late in New York on Friday. US gold futures for April delivery rose $US6.70 an ounce to $US1,434.80.

"There are a couple of things driving gold prices at the moment, and these are not short-term arguments," Commerzbank analyst Daniel Brisemann said.

"One thing is the probable ECB rate hike, given the inflation outlook. Other things are geopolitical risks in North Africa and the Middle East, as well as the weak US dollar."

"These things altogether account for the recovery in gold prices today," he added.

"Probably the downward move on Friday was seen as exaggerated by many market players, and they took the lower price as an opportunity to get into gold."

The euro hit fresh five-month peak against the dollar on Monday with markets all but certain the European Central Bank will raise interest rates later this week.

Analysts say gold is benefiting from expectations that some smaller euro zone economies like Portugal and Ireland will continue to struggle with sovereign debt, especially if the ECB presses ahead with a rate hike.

Rating agency Fitch cut Portugal's credit ratings by three notches to BBB- late on Friday, one notch above junk, and signalling further downgrades are likely.

In contrast, one of the Federal Reserve's most powerful policymakers on Friday countered recent hawkish rhetoric from some other Fed officials worried about inflation, saying he saw no need for the central bank to reverse course.

Opinion split

William Dudley, president of the New York Federal Reserve Bank, said the Fed was "still very far away" from achieving its mandate of maximum sustainable employment and price stability, although the economy is on a firmer footing.

"Dudley's comments Friday underlined the lack of consensus on the FOMC. This policy divide is gold-positive," UBS analyst Edel Tully said in a note.

"Another flood of Fed views this week - Chairman Bernanke and Chicago Fed President Evans (voter) speak today, as does non-voter Lockhart; tomorrow brings voters Plosser and Kocherlakota and the FOMC minutes, Wednesday Lockhard again, Thursday non-voters Pianalto and Lacker - should give further insight into where the balance of FOMC opinion resides."

"This, and Thursday's widely expected ECB rate hike, will be gold's main drivers over the coming days."

Meanwhile, data released by the US Commodity Futures Trading Commission showed speculators in gold futures and options raised their net long positions as prices rose to fresh records last week.

Rising oil prices also helped support gold. US oil climbed and North Sea Brent crude futures rose more than $US1 per barrel to above $US119.70 on concerns over oil supply as unrest continued across North Africa and the Middle East.

Among other precious metals, silver climbed to its highest in 31 years at $US38.40 an ounce, lifted by gold's gains and expectations the economic recovery would benefit industrial commodities.

It was later at $US38.31 an ounce against $US37.74.

Among other precious metals, platinum was at $US1,766.24 an ounce against $US1,765, while palladium was at $US777.50 against $US769.95.

(Source: http://www.businessspectator.com.au/bs.nsf/Article/PRECIOUS-Gold-firms-as-dollar-retreats-oil-climbs-FLDBG?opendocument&src=rss)