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Gold succumbs to currency pressure

G. Chandrashekhar

MUMBAI, Oct. 29

GOLD succumbed to currency-induced downside pressure last week, dragged down by a fresh record low for the euro and, in addition, weakness of the Australian dollar, the rand and the Indian rupee. Active selling ensured that the yellow metal fell through the key support level of $ 269 per ounce.

Importantly, as expected, follow-through selling from technical funds and speculators, assisted by the continuing strength of the dollar saw gold hit fresh 13-month lows on October 26 as prices swiftly fell through even $265/oz.

On Friday, gold closed at $263.80/oz, London PM fix, a decline of 2.5 per cent week-on-week, but not before moving close to $262/oz when reports of a weaker US growth in the third quarter (Q3'00) saw the dollar ease and helped arrest a further fall.

Currencies, essentially the dollar, continue to be the key driver of gold. There is little sign of an imminent turn in this trend given comments from the US officials favouring a strong dollar policy, while it is a concern that the dollar is still a thir d below the record peak reached in 1985, according to Macquarie Bank Limited.

An analyst with the bank said downside pressure was expected to resume, possibly with a pause due to Comex activities. The latest Comex commitment of traders report showed that large speculators had reduced their net short (futures only) positions in gol d to 52.1 tonnes as of October 17, falling 27.3 tonnes over the week.

Silver was under pressure, too, all of last week, largely following gold. On Friday, it had fixed at $4.72/oz, its lowest fix since December 3, 1998. Week-on-week, the decline was 2 per cent. Industrial demand was reported to be strong, but Indian demand was weak, the analyst said.

Platinum lost ground on low volume and ended the week at $576/oz (2 per cent decline). But palladium ignored the weaker trend in metals and remained firm at $ 752/oz.