Gold steadies as dollar, equities slide, but outlook still bleak

October 2, 2014

London (Oct 2)   Gold steadied on Thursday as the dollar fell and weak global manufacturing data unnerved equity investors, but expectations of further gains in the U.S. currency kept demand for the metal sluggish.

Spot gold was up 0.1 percent to $1,214.16 an ounce by 1012 GMT, while U.S. gold futures lost $1.10 to $1,214.40 an ounce. Cash prices had touched a nine-month low of $1,204.40 an ounce on Tuesday.

"There is just very low demand for gold in general ... and although (the dollar rally has paused) and there is still some room before prices fall through the $1,200 level, in the long run I don't see any indicator suggesting a possible upside," said Natixis analyst Bernard Dahdah.

The dollar fell 0.3 percent against a basket of leading currencies as investors took profits after the recent rally. The index has notched up a record-breaking 11 straight weeks of gains and posted the best quarterly rise in six years.

The strength in the dollar has weighed heavily on precious metals in recent weeks and although the dollar rally paused on Thursday, the currency was not too far from a four-year peak.

Gold's steadiness was also helped by lower European stocks after a slew of surveys on Wednesday showed German factory activity shrinking for the first time in 15 months, China's manufacturing sector barely growing and the United States slowing more than expected.

Economic uncertainty sent investors scurrying for insurance assets, often considered as an alternative during times of heightened financial or political risk.

"With the likelihood of further weakness in equity markets, coupled with the still volatile situation in Hong Kong, we would rather not want to be short gold here, as we think the precious metal may benefit from some short-covering heading into the weekend," INTL FCStone said in a note.

Confirmation of a case of Ebola in the United States on Wednesday has added to international political tensions in Hong Kong, where tens of thousands of mostly young people have protested for nearly a week, demanding China introduce full democracy so the city can freely choose its own leader.

Market players were also eyeing the outcome of a policy meeting on Thursday by the European Central Bank, which is expected to present details of a new asset-buying plan that it hopes will revive the flagging euro zone economy and see off the spectre of deflation.

But sentiment towards gold remained wary, mostly on expectations the dollar will continue to appreciate in coming months. Holdings in the world's largest gold-backed exchange-traded fund SPDR Gold Trust fell 1.2 tonnes to 768.66 tonnes on Wednesday, the lowest since December 2008.

In other precious metals, silver fell 0.1 percent to $17.12 an ounce, after touching its lowest since March 2010 at $17.07 earlier in the week. Platinum was down 0.3 percent at $1,270.25 an ounce after falling to a five-year low in the previous session and palladium rose 0.4 percent to $777 an ounce.

Source: Reuters

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