Dec 15, 2009
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Gold recovers losses after U.S. inflation data

Dec 15, 2009

LONDON (Reuters) - Gold pared early losses in Europe on Tuesday 15 December after U.S. inflation data for November came in higher than expected, boosting interest in the metal as a hedge against rising prices.

Prices earlier fell more than 1 percent as the dollar rose versus the euro. But the inflation data lifted them back toward late yesterday (14 December)'s levels, with momentum picking up as traders bought back short positions, or bets prices will fall.

Spot gold was bid at $1,121.70 an ounce at 1509 GMT (10:09 a.m. EST), against $1,126.20 late in New York on Monday 14 December. Earlier it fell as low as $1,111.20 an ounce.

"Gold found some buying interest after U.S. inflation data came out higher than expected, playing out its role as an inflation hedge," said Heraeus trader Alexander Zumpfe.

Government data on Thursday 10 December showed U.S. producer prices rose more than forecast in November as energy costs soared. Gold is often seen as an inflation hedge.

Oil prices also rose $1.25 a barrel, or 1.8 percent. U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange fell 70 cents to $1,123.10 an ounce.

A rise in the dollar versus the euro on Tuesday 15 December kept pressure on gold, however, as concerns about euro zone banks helped prompt short covering in the safe-haven dollar.

Traders are keenly awaiting comments by the U.S. Federal Reserve, which starts a two-day policy meeting later in the day. The bank is likely to repeat a pledge to keep interest rates near zero for an extended period, even though it may acknowledge signs of economic recovery.


"So far, the U.S. central bank has remained quite skeptical of a quick recovery, though still talking inflation expectations down," said VTB Capital analyst Andrey Kryuchenkov in a note.

"A rate rise is still not expected until 2H10, but the dollar sentiment could be gradually improving and this would slow down a much expected price recovery in gold in early 2010."

On the physical side of the market, lower gold prices attracted purchases from the electronics sector in Japan and spurred bargain hunting by jewelers in other parts of Asia such as India, but trading began to slow down ahead of year-end.

India's gold traders picked up bargains on Tuesday 15 December in the middle of the wedding season as the yellow metal reversed early gains on a strong overseas dollar, dealers said.

Meanwhile holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, rose 0.304 tonnes on Monday 14 December to 1,116.551 tonnes the previous day.

The SPDR saw its biggest outflow since July last week, amid a fall in gold prices to four-week lows. This consolidation has allowed gold to build a base for further gains, analysts say.

"I think the recent retrenchment will simply be a buying opportunity," said David Wilson, an analyst at Societe Generale. "A rescaling of $1,200 an ounce isn't beyond the realms of possibility."

Among other precious metals silver was bid at $17.28 an ounce against $17.36, tracking losses in gold. Platinum was at $1,436 an ounce against $1,443.50, while palladium was at $361.50 against $364.50.

(Editing by Keiron Henderson)

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