Armaan blog

Gold retreats from record

LONDON (Reuters) – Gold retreated from record highs on Friday, as a firmer dollar tempered the momentum, although concerns about further quantitative easing in the United States cushioned prices.

Sister-metal silver was supercharged, benefiting also from gains in prices for industrial metals to test the $21 mark. A break above $21.24 would open the way for prices to hit levels last seen in October 1980.

Spot gold hit an all-time high of $1,282.75 a troy ounce before easing to a bid at $1,276.50 by 1215 GMT (8:15 a.m. EDT), compared with $1,272.20 late in New York on Thursday. It has gained more than $100 or 8.4 percent since the start of August.

"It's partly a currency move. There's certainly investor nervousness about monetary policy around the world since the yen intervention," said precious metals strategist Matthew Turner of Mitsubishi Corp.

"A lot of people are sensing a race to the bottom by central banks to print more of their currency, to reflate their economies and gold is getting support from that."

The dollar (.DXY) gained ground against the euro on Friday on talk of an Irish bank in trouble, but remains close to one-month lows against a basket of currencies.

Dollar sentiment overall has been damaged by speculation of more quantitative easing from the U.S. Federal Reserve next week.

Quantitative easing is a process by which central banks attempt to pump money into economies by printing money and buying bonds. Excess liquidity can often lead to price pressures as too much money chases too few goods and services.

A lower U.S. currency makes dollar-denominated commodities cheaper for holders of other currencies. Investors use gold as a store of value during times of high inflation or financial market turmoil.

Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD.P), were flat overnight at 1,294.746 tonnes, having fallen the day before. But earlier this week the number rose by more than 6 tonnes.

The market shrugged off data that showed U.S. consumer prices increased slightly more than expected in August as food prices rebounded and energy costs remained elevate, but core prices were flat.

SEASONALLY STRONG

September and October are typically seasonally strong periods for jewelry demand, with a number of small gold-buying festivals in major consumer India, while Western manufacturers stock up ahead of Christmas.

Lending background support this week however, was news of AngloGold Ashanti's (ANGJ.J) capital raising, a key function of which was to buy back its outstanding gold hedge.

"They've raised the capital, but I haven't heard any strong rumors (that they have bought any gold)," said analyst Robin Bhar of Credit Agricole.

Spot silver was bid at $20.85 an ounce from $20.72 in New York on Thursday.

"The last few months, silver has been benefiting as a monetary metal like gold, when things are looking bad, and as an industrial metal when things are looking good. So investors are very keen," Mitsubishi's Turner added.

Expectations of stronger growth in the final few months of this year has helped boost industrial precious metals platinum, palladium and silver.

However, silver is according to technical analysis, overbought and could be due a correction.

"Silver is renowned for overshooting and undershooting, so this rally can get more exponential but we are already up 18 percent since late August," Kendall said.

"In my opinion, that kind of rate of increase can't be sustained. I would not be recommending anyone to get long or longer silver at $21."

Spot platinum hit $1,630 an ounce, its highest since May 19. It was last at $1,619 from $1,603.65 on Thursday and palladium was bid at $546.00 an ounce from $544.65.

(Editing by Sue Thomas)