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Gold dips on profit taking midafternoon

Wednesday, January 9, 2008

LONDON (Thomson Financial) - Gold dipped in early afternoon trade as investors took profits after the yellow metal this morning hit a new record high, and as the dollar strengthened a touch against the euro.

The precious metal rallied to a high of 891.30 usd an ounce overnight after the Shanghai Futures Exchange, mainland China's largest futures bourse, launched its new gold futures contract, which attracted strong buying interest despite trading at a premium to the London spot price, analysts said.

However, prices have eased midafternoon as investors booked profits from the rally, and as the dollar recovered some ground against the other major currencies.

Platinum also eased after touching an all-time high in earlier trade.

"We made good upward progress this morning, so some profit taking is to be expected," said TheBullionDesk.com analyst James Moore.

At 1.41 pm, spot gold was trading at 874.35 usd an ounce against 877.80 usd in late New York trade yesterday, having traded as low as 871.80 usd this afternoon.

The precious metal has seen strong investment demand in recent days, especially in the light of January index re-balancing, which sees funds realign the proportions of assets held in their indices. Demand for gold and silver from funds has been strong.

Its appeal has been boosted by the volatility of other assets such as equities. Gold is typically seen as a 'safe haven' which will hold its value as other assets fluctuate.

The metal had already been pushed to new record levels in recent weeks by the ailing dollar, soaring oil prices, and fears over a US economic slowdown.

The metal typically moves in an inverse relationship with the dollar, weakness in which boosts gold's appeal as an alternative investment, and in line with oil.

High oil prices are usually a sign of rising inflation, against which gold is bought as a hedge. Fears that the US Federal Reserve bank will cut interest rates further after a spate of poor economic data is also boosting the appeal of gold.

With these factors unlikely to disappear any time soon, gold could be challenging fresh highs, analysts said.

"Investors are coming into gold because they are uncomfortable in other markets," said Dresdner Kleinwort analyst David Holmes. "If the Fed continues to cut rates and inflation continues to rise, that is almost the perfect environment for buying gold."

Among other metals, platinum was trading at 1,545 usd an ounce against 1,550 usd in late New York trade last night, having earlier hit a new record high of 1,561 usd. Its sister metal palladium was trading at 371 usd against 375 usd.

Elsewhere, silver was trading at 15.60 usd against 15.69 usd.

Posted by MOHAMED SAID at 6:11 AM  

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