Gold price climbs off 2-week low on dollar, shares retreat
New York (May 11) Gold rebounded from two-week lows on Wednesday as the dollar's rally paused and European shares fell, rekindling investor appetite for the precious metal.
Spot gold was up 0.65 percent at $1,274.76 an ounce, while U.S. gold for June delivery gained 0.9 percent to $1,276.80 an ounce. The metal touched a low of $1,257.25 on Tuesday, its weakest since April 28.
The dollar slipped 0.2 percent versus a basket of major currencies, making dollar-priced assets such as gold cheaper for holders of other currencies. Gold reached a 15-month high of $1,303.60 last week, before surrendering to the general strength of the dollar.
Analysts see the $1,300 level as a tough barrier in the short term, as the metal has already enjoyed a 20 percent increase since the start of the year, bolstered by strong physical inflows and receding expectations for a near-term increase in U.S. interest rates.
"We do have a number of drivers that should give fundamental support for gold and are definitely capping the downside but gold has come along quite a bit this year so I can't see it breaching the $1,300 level more permanently when the dollar has increased so much," Danske Bank senior analyst Jens Pedersen said.
Gold is supported largely by expectations that the next U.S. interest rate increase will only happen later in the year as Fed policymakers take note of challenging global economic conditions, Mark To, head of research at Wing Fung Financial Group said. "The current situation is favourable to gold but it is not overwhelmingly favourable," To said, adding that the U.S. economy appears to be in good shape overall.
"That's why people take some profits along the way." Goldman Sachs also sees "limited upside for gold pricing given the limited room for the Fed to surprise to the downside, limited room for the dollar to depreciate, and limited room for China to drive (emerging markets) currency strength to contribute to dollar weakness."