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Gold climbs as EU aid plan for Greece lifts euro
Jan Harvey
LONDON
Thu Feb 11, 2010 8:12am EST

LONDON (Reuters) - Gold climbed toward $1,080 an ounce in Europe on Thursday as the euro rose against the dollar and Bund futures extended losses after the European Union president said a deal to help Greece had been reached.

Spot gold was bid at $1,078.35 an ounce at 1241 GMT (7:41 a.m. EST), against $1,071.55 late in New York on Wednesday. U.S. gold futures for April delivery on the COMEX division of the New York Mercantile Exchange rose 10 cents to $1,078.80.

Gains in gold are being capped, however, by a relatively weak technical picture and concern over the medium-term outlook for the euro, which will influence investment demand.

"It is very much investor sentiment which is going to set prices in the first half of this year," said Barclays Capital analyst Suki Cooper.

"We think there is likely to be further downside from here as the first half progresses, mostly down to the fact that our FX strategists see the euro-dollar moving toward $1.35.

"Given the technical picture looks quite weak at the moment, and the macro factors for gold are quite weak, we could see more downside before sentiment turns more positive."

The euro climbed against the dollar on Thursday, boosting gold prices, after EU president Herman Van Rompuy said European leaders had reached a deal to provide aid to Greece in a move to stave off a broader crisis in the euro zone.

A Spanish source told Reuters that details of the aid would be worked out at the latest by Tuesday, when EU finance ministers are due to hold a meeting.

The dollar is benefiting from euro weakness rather than any innate strength of its own, analysts said, and so could be due a correction if and when euro zone debt problems are resolved.

Among other commodities, oil prices climbed toward $75 a barrel on Thursday as a positive assessment of demand growth and the rescue plan for Greece buoyed prices.

CHINA BUYS

On the physical markets, analysts reported good demand for gold in Asia ahead of the Chinese New Year holiday beginning this weekend.

"Even if Chinese demand slows during and after the Chinese New Year festivities, gold demand in India and other emerging nations appears likely to remain firm and at the least provide a cushion to prices," said HSBC in a note.

Holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, were steady on Wednesday. The fund reported its first inflow this year after prices fell to three-month lows on Friday, but holdings have since steadied.

On the supply side, South Africa's statistics office said gold mine output fell 8.8 percent in December in volume terms. The republic was the world's third-largest mine producer in 2008 with output of 233.3 tonnes.

But South Africa's fourth-biggest gold producer, DRDGOLD, reported a 4 percent rise in gold output for the quarter to December and a return to profit owing to lower operating costs.

Among other precious metals, silver was at $15.34 an ounce against $15.18. Platinum was at $1,514.50 an ounce against $1,507, and palladium at $414 against $411.50.

Aquarius Platinum said in a conference call it sees attributable platinum group metals production at 445,000-450,000 ounces this year.

Constraints on platinum output from South Africa this year are a potential support to prices. South Africa is the source of four out of five ounces of mined platinum supply.

http://www.reuters.com/article/ousivMolt/idUSTRE5B10OV20100211