Gold gains, easing eyed

[Barron]

SINGAPORE (Reuters) - Gold edged higher on Tuesday, after weak manufacturing data across the globe rekindled hopes for more easing from central banks to support recovery.

Gold thrives on abundant money supply and low interest rates, which increases inflation outlook and benefits bullion which is seen as a hedge against rising prices.

U.S. manufacturing shrank in June for the first time in nearly three years, following a string of data from Europe and Asia that suggested the euro zone debt crisis was reverberating throughout the global economy.

"You can take it as a sign that chances of QE (quantitative easing) are improving," said Dominic Schnider, an analyst at UBS Wealth Management in Singapore.

But this does not mean that a QE will come anytime soon, he cautioned, given the Fed just recently extended its "Operation Twist" programme which involves selling short-term securities to buy longer-term ones to keep long-term borrowing costs down.

"We are unlikely to see a big add-on after Operation Twist was extended, unless things fell off the cliff. And remember, when things did fall off the cliff in 2008, gold fell as well."

Spot gold edged up 0.3 percent to $1,601.74 an ounce by 11.49 p.m. EDT on Monday. U.S. gold futures contract for August delivery also gained 0.3 percent to $1,602.50.

The all-important U.S. non-farm payrolls due Friday, expected to shed light on the state of the labor market in the world's top economy, will be scrutinized by investors eager to predict the next move by the U.S. Federal Reserve.

PHYSICAL MARKET QUIET AGAIN

Asia's physical gold market fell back into slumber after short-lived excitement late last week when bullion dropped below $1,550 per ounce before staging a 3-percent rally.

"Customers went in to pick up gold below $1,560 last week but now the market is quiet again," said a Singapore-based dealer, adding that gold bar premiums were about 70 cents above London prices.

A rally in the rupee against the dollar last Friday helped gold purchases from India, traditionally the world's top bullion consumer.

Spot silver rose nearly 0.9 percent to $27.72, holding close to last Friday's high of $27.91.

"The dimmed economic outlook leads to expectations of more stimulus, which will weaken the dollar and help metals," said a Shanghai-based trader.

"Of course silver will be relatively weaker than gold due to its industrial nature, but we do sense anticipation of a further price rise in the physical market."

Precious metals prices 11.49 p.m. EDT on Monday

Metal Last Change Pct chg YTD pct chg Volume

Spot Gold 1601.74 5.06 +0.32 2.43

Spot Silver 27.72 0.24 +0.87 0.11

Spot Platinum 1456.00 7.25 +0.50 4.52

Spot Palladium 575.50 3.75 +0.66 -11.80

COMEX GOLD AUG2 1602.50 4.80 +0.30 2.28 5673

COMEX SILVER SEP2 27.71 0.21 +0.75 -0.75 2239

Euro/Dollar 1.2596

Dollar/Yen 79.77

COMEX gold and silver contracts show the most active months

[awalker79]

Gold is not just a world currency, it is simultaneously a commodity. So, with inflation rising high, every thing on earth is becoming dearer. Gold prices are also ought to go up but as it is also used as a currency, so it may lose some value when paper money such as dollar or euro gains value. But this decrease is only temporary. Gold is limited, its mining and refining are becoming costlier whereas its demands are increasing. So, there should be no doubt that gold will cost over $3000 an OZ in the next 3 years.