Gold hovers near record highs as economic fears persist

Courtesy Reuters

Gold was set for its third successive daily rise in international markets today, supported by uncertainty over the resilience of the global economic recovery and by resurfacing geopolitical tensions with Iran.

Gold prices flirted with sessions highs as the euro came under renewed pressure to fall to a 1-1/2 year low against sterling and eased against the dollar, while euro zone government bonds rose as investors were unsettled by a fall on Wall Street and persistent concern about Europe's debt crisis.

"Really the big driver is investor perception, investor risk appetite and do we see any nervousness over the European (debt) issue," said Societe Generale analyst David Wilson.

"Sentiment is still quite brittle, so we can get intraday moves in either direction, but the longer gold stays above $1,250 and consolidates, the more likely we are for a leg up rather than a leg down," he said.

Spot gold rose $7.80 to $1,261.35 an ounce by 1415 GMT, having hit an all-time high of $1,264.90 an ounce last Monday. U.S. gold futures for August delivery rose $5.50 cents to $1,261.30 an ounce.

Adding to the bullish backdrop for gold were comments from U.S. intelligence officials that Iran has enough fissile material for two atomic bombs.

Gold came under modest pressure earlier in the day from a rise in the dollar as its traditional inverse relation to the greenback briefly reestablished itself, while the broader markets were largely unperturbed by the weekend's meeting of G20 leaders in Toronto.


SAFE HAVEN SWEEP

But flagging equities and the broad decline in the euro reinvigorated the safe-haven sweep into both the U.S. currency and gold, prompting the two to move in tandem.

"The underlying safe-haven concerns that have supported prices -- the economic environment, Europe's fiscal outlook and the longer-term prospects for inflation, remain," said David Moore, commodities strategist at Commonwealth Bank of Australia.

"The G20 hasn't had a significant impact on markets, and while concerns about Iran's nuclear capacity are nothing new, there seems to be additional clarity."

With this in mind, gold could rise further to surpass the June 21 record at $1,264.90 per ounce to touch $1,270, as bullish momentum is strong, according to Reuters technical analyst Wang Tao.

He noted the bulls were taking control, with prices in an ascending channel from a $1,224.30 low struck last Wednesday and sharp rises and mild falls.

Gold was little moved by data that showed U.S. consumer spending rose more than expected in May, even as savings touched their highest in eight months, while a measure of inflation showed fairly muted core price pressures.

However, a continued contraction in physical demand from traditional end-users could undermine gold, at least in the short-term, analysts said.

The head of the Bombay Bullion Association said on today that gold imports into top consumer India are likely to have fallen by 75 percent in June from 29.9 tonnes a year ago. Suresh Hundia, president of BBA, told Reuters this bearish estimate could be overly optimistic and the final figures could be lower than this.

"The numbers are so bad, nobody wants to share it this time," he said referring to the importing banks and trading agencies, which contribute their data to the trade body.

While consumer demand has been dampened by gold prices near record highs, concern about the stability of the wider financial markets has fed demand for gold-related investment vehicles.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings remained unchanged at an all-time high at 1,316.177 tonnes.

Silver was up at $19.19 an ounce, from $19.04 late in New York on Friday, while in the platinum group metals complex, platinum rose 0.9 percent to $1,580.00 and palladium was up about 0.3 percent at $476.00.