Gold ticks higher as dollar, stocks dip; Fed eyed

Business & Markets 2013
Written by Reuters
Wednesday, 29 May 2013 18:48
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LONDON (May 29): Gold rose modestly on Wednesday, reacting to a
lower dollar and stock markets with residual support from Chinese
physical buying.
But the root of weakness in wider markets - improved U.S. data
suggesting the U.S. Federal Reserve might taper its monetary stimulus
programme - was also seen as a catalyst to ultimately take bullion
prices lower.
Persistent outflows from gold-backed funds (EFTs) were expected to
heap more pressure on prices after spectacular falls in April that saw
gold hit a two-year low.
Spot gold rose 0.2 percent to $1,383.80 an ounce by 0955 GMT, after
falling as low as $1,373.14 on Tuesday when equities were initially lifted
by strong U.S. economic data.
"It's a little bit surprising that gold has not been reacting more to the
stream of improving U.S. data and hints from Fed communication that
tapering could start sooner rather than later - gold should be more
vulnerable to that," Christin Tuxen, analyst at Danske Bank, said.
"We still think gold is in bubble territory despite the April sell-off. The
rise in U.S. bond yields will be a key factor going forwards," she added.
In bond markets, U.S. 10 and 30-year Treasury yields extended their
recent rise on expectations the Fed would start thinking about paring stimulus. European stocks reversed Tuesday's gains,
while the dollar was down 0.1 percent versus major currencies.
As gold has no interest rate, the rise in returns from U.S. bonds and other markets is seen as a negative signal.
For now, lower prices of the precious metal are luring physical buyers across Asia, with dealers facing a tough time
organising supplies to meet demand.
"We can see some Shanghai futures buying interest pushing the market higher," said Peter Fung, head of dealing at Wing
Fung Precious Metals in Hong Kong.
Gold futures in Shanghai are about $25 more than spot gold, indicating that demand was strong in China, the world's No. 2
consumer after India.
Physical demand has picked up in Asia since gold's biggest daily plunge in 30 years last month. Premiums for gold bars hit a
record high in Asia last week.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell to 1,012.25 tonnes on Tuesday, their
lowest since February 2009.
U.S. gold gained $4.30 to $1,383.20. Silver firmed slightly with gold, while platinum and palladium slipped 1.3 percent and 0.1
percent respectively