Source: Reuters
London— Gold eased but still held above the psychological benchmark $500 an ounce on Friday, as some investors lightened up on positions after days of speculative selling and increased volatility in the market.
Prices fell to a two-week low at $492.90 during Asian trading as the yen's rise against the dollar sparked more heavy liquidation in Japan, but some bullish players in gold took advantage of the dip to buy.
While the precious metal could easily fall further due to the weight of selling from Japanese investors and potential year-end liquidation, most expected good buying on price dips.
"I think the move down is overdone," said Peter Hillyard, head of metals sales at ANZ Investment Bank. "In my view, there will be new buying in the market."
Many participants had retreated to the sidelines, warily eyeing gold's impressive near-$50 price fluctuations this week, which began with bullion peaking at $540.90 on Monday, its highest in nearly 25 years, only to fall sharply in recent days.
By midafternoon in New York, spot gold was quoted at $502.90/503.70 an ounce, off from Thursday's late quote at $503.80/504.60.
"We have moved the best part of $50 this week and as such I think that this will frighten people away until the New Year at least, leaving the speculators and the Japanese investors to fight it out," said Simon Weeks, director precious metals at Scotia Mocatta.
"On that basis, the overall risk is still on the downside although there will obviously be pockets of demand which should be sold."
Sentiment for Japanese TOCOM futures gold was dampened by the strength of the yen as well as an announcement earlier in the week that the exchange would require higher margins for its gold futures contracts from Wednesday.
The dollar hit a new six-week low against the yen at $115.61 as investors continued to cover short positions in the Japanese currency and bail out of carry trades.
Gold would certainly remain at the mercy of Japanese investors until they were able to unwind all of their trades.
New Era
Generally gold's prospects ahead were regarded by most analysts and traders as bullish which they attributed to ongoing portfolio diversification from more mainstream investors, coupled with robust demand for physical metal.
The physical sector saw some pre-Christmas buying from jewelers in Singapore and Malaysia.
Alan Williamson, metals analyst at HSBC bank, said in his daily report that while it was still too early to conclude the market had found a bottom, it did seem as if the recent period of aggressive selling may have come to an end.
Hillyard said he saw gold back up around $520 an ounce by the year end and was looking for higher levels next year.
"I think we're in a new era for gold. I don't think it's (this week's rally) a flash in the pan. I think the market is going to live mostly above $500 next year," he said.
A quarterly poll of 16 analysts released on Friday by PriceWaterhouseCoopers that tracks sentiment in the metals markets showed a median average price for gold of $490 an ounce for the first quarter of 2006 and an average of $475 for the whole year.
Platinum was little changed at $957/961 an ounce from $956/961 previously. Sister metal palladium ended at $259/263, off from $263/267 an ounce.
Silver slipped to $8.52/8.55 from $8.54/8.57.
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