Gold gains as dollar slides

Gold futures for August delivery were 0,5% up on the day on the Comex division of the New York Mercantile Exchange and traded at $1 386,25 a troy ounce, following a 0,8% surge earlier in the day.

Golds gain was supported by the weakened dollar, which lost positions against the euro and the Japanese yen. Weakening of the dollar tends to increase gold prices as they generally trade inversely. Weaker greenback makes dollar-priced commodities, such as gold, silver, oil etc. cheaper for foreign currency holders and more attractive for investing. The dollar index, which tracks the greenbacks performance against six major counterparts, dropped 0,65% and traded at 83,78.

Gold also found support by increased physical demand. Some central banks bought record quantities, attracted by low prices. Russia and Kazakhstan have been diversifying assets by buying gold after its prices contracted by a record pace. The two countries have kept buying gold for a seventh straight month. Turkey is also on the list of countries, which have expanded their gold reserves. Turkey’s holdings increased by 18,2 tons to 427,1 tons in April, a tenth straight month rise. Belarus’s holdings increased for a seventh month and Azerbaijan’s and Greece’s reserved gained for a fourth month in a row. Gold demand in India, worlds largest buyer, will hit a quarterly record according to the World Gold Council and will reach 300 to 400 metric tons, equal to half of the total shipments last year. This increased interest, based on lowered prices, has kept supporting the precious metal.

Daniel Briesemann, an analyst at Commerzbank AG said in an e-mail for Bloomberg: “In contrast to demand among institutional investors, who withdrew funds from the gold ETFs again yesterday, gold demand among retail investors remains extremely robust.”

Still, gold gains are curbed by the shifting expectations of a preliminary slowdown of Feds Quantitative Easing program. Gold prices were pressured on Tuesday by the positive U.S. economic data. The S&P/Case-Shiller Composite-20 Home Price Index rose to 10.87% in March, compared to the revised value of 9,32% in the preceding month and way above the 10.2% forecast. The Conference Board’s Consumer Confidence Index (CCI) rose unexpectedly to 76,2 for May, compared to a revised 69 for April and exceeded the forecast of a value of 71. Good news about the U.S. economy boost speculations about scaling down Fed’s Quantitative Easing program later this year, thus strengthening the dollar, which would cause the precious metal to sink.